Looking Forward Financial Ratio and Value Analysis (Valor de la firma y razones financieras para el análisis financiero)

17 Pages Posted: 9 Jul 2007

See all articles by Ignacio Velez-Pareja

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Date Written: July 7, 2007

Abstract

Usually financial textbooks present the financial ratio analysis. Many courses are taught in financial analysis and teachers spend lot of efforts teaching how to calculate financial ratios. Most of them are used to analyze historical financial statements. These analyses are very useful in identifying historical policies and targets. It is useful to analyze a posteriori, the consequences of a given decision and in general the performance of the firm management. Also, they can be used as predictors of the performance of a firm using the proper discriminant analysis technique. However, examining historical financial statements is a kind of necropsy that does not help very much to reach optimal financial decisions.

The most important management function is to increase the value of the firm. In this paper we present how the future decisions can be evaluated in terms of measuring the behavior of the firm value, given a decision to be analyzed. We also show the limitations of the traditional financial ratio analysis in reaching the target of maximizing the firm value.

Note: Downloadable document is in Spanish.

Keywords: Financial ratios, vertical analysis, horizontal analysis, firm valuation, firm value

JEL Classification: M21, M41, G12, G31, J33

Suggested Citation

Velez-Pareja, Ignacio, Looking Forward Financial Ratio and Value Analysis (Valor de la firma y razones financieras para el análisis financiero) (July 7, 2007). Available at SSRN: https://ssrn.com/abstract=999103 or http://dx.doi.org/10.2139/ssrn.999103

Ignacio Velez-Pareja (Contact Author)

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

HOME PAGE: http://cashflow88.com/decisiones/decisiones.html

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