<span>Analysts derive a broad array of financial ratios from published financial reports to assess business enterprise performance. Only a few, however, may be necessary for meaningful insight. This study explores whether operating cash flow ratios provide unique or redundant insight in financial ratio analysis of retail firms. Adoption of Financial Accounting Standard #95, The Statement of Cash Flows, by the Financial Accounting Standards Board in 1987 provides the impetus for the ongoing interest in cash flow ratios. We find that operating cash flow ratios provide unique insight, relative to traditional accrual-based financial ratios, regarding a retail firms ability to pay. Therefore, financial ratio analysis of a retail firm should include cash flow ratios for predictive, explanatory or descriptive purposes.</span>
Prior research established a seven dimension taxonomy of financial ratios. Arguably, advances in business practices, changes in financial reporting standards, and technology have affected the underlying relationships of this taxonomy. This study proposes to identify the extent to which the previously identified relationships have changed, and, if appropriate, to establish an entirely new taxonomy of manufacturing industry financial ratios.In addition, this study substantially improves and extends prior work in two areas. First, it utilizes advanced statistical methodologies and computing technologies that were unavailable to previous researchers. Second, it investigates not only the current taxonomy of manufacturing industry financial ratios, but also its stability over a recent ten year period.Our findings indicate that eleven factors now comprise the financial ratio taxonomy. Notably, a separate cash flow factor did not surface in this study as was the case in earlier work; rather, cash flow ratios correlated with accrual-based measures. Finally, our study identified a new current position factor.2
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