Stability of Financial Ratios: A Study of Listed Companies in Singapore

This study seeks to evaluate the stability of financial ratios across industry and over time. The sample comprises companies listed on the Stock Exchange of Singapore from 1980 to 1991 over six industry groupings. A set of 29 most commonly used ratios was selected for the study. Descriptive statistics, factor analysis and analysis of variance were performed. From the factor analysis results, eight representative ratios were identified. Analysis of variance and multiple comparisons were subsequently performed for each representative ratio to test if it is significantly different across industry and over time. The results indicate that financial ratio averages of the various industries are significantly different. This implies that the appropriate benchmark for evaluating company performance and position should be industry‐specific instead of economy based. Also, five of the representative ratios are significantly different over time and not all the industrial averages move consistently over time (i.e., interaction effects of industry and time exist). Thus, industry averages are not necessarily appropriate benchmarks for setting and evaluating performance through time.