Can Financial Ratios Predict Earnings ? A Time Series Approach

This study aims to understand which financial ratios have a statistical significance for earnings. The early work in this field was carried out by authors such as Altman (1968) and Beaver (1968) using financial ratios to try and predict bankruptcy. Later authors such as Lookabill (1976) took a more formal statistical approach. More recent authors such as Fama and French (2000) and Llewellen (2003) concluded that earnings were mean-reverting, but that they were non-linear.