Applying Factor Analysis to Financial Ratios of International Commercial Airlines

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.The international commercial airline sector was chosen as the subject of the present research in an attempt to study the factor groupings in a sector whose financial characteristics differ from manufacturing or retailing. Results show that factor categorization reflects the sector's financial characteristics. The study also draws conclusions on some observed differences between the empirical and theoretical ratio classification observed in the literature. The study lends support to the conclusion that factor analysis provides a useful means by which to develop and test the theoretical structure and grouping of financial ratios.

On the Use of Multidimensional Data Analysis Techniques for Corporate Valuation

“…As regards financial investigations, since the research of FA pioneers (Pinches, Mingo,& Caruthers, 1972) which tried to realize a classification of financial ratios related to US industrial firms, FA is used as a way in order to remove the redundancy and to reduce the number of financial ratios required for empirical researches. Therefore, Ali and Charbaji (1994) used this technique within the international commercial airlines sector to reduce 42 financial ratios to five underlying factors. Tan, Koh and Low (1997) applied FA for the companies listed on the Stock Exchange of Singapore, thus reducing 29 financial ratios to eight underlying factors.…”

Factor Analysis to Evaluate the Financial Performance of the Construction Industry in an Emerging Market: The Case of Colombia

“…Financial ratios are widely used to analyze the behavior and the performance of a firm because they not only provide information about a firm's performance but allow, in turn, a comparison of results across the industry or sector to which the firm belongs. However, the calculation of many financial ratios is not only impractical, but also of little use, in capturing more information about the firms analyzed, because they can have interrelationships, which statistically means the presence of multicollinearity (Ali and Charbaji, 1994). The use of some statistical methods, such as factorial analysis, can reduce this effect by seeking the factors (latent variables) that underlay the entire set of financial ratios.…”

Applying Factor Analysis on the Financial Ratios of Turkey’s Top 500 Industrial Enterprises

“…There are quite a large number of financial ratios and certain studies in the literature resort to factor analysis to determine the factors that explain the financial ratios in a smaller set of new composite dimensions (e.g., Pinches, Mingo & Caruthers, 1973;Chen & Shimerda, 1981;Taffler, 1982;Ali &Charbaji, 1994;Ganesalingam & Kumar, 2001;Ugurlu & Aksoy, 2006;De, Bandyopadhyay & Chakraborty, 2011;Chen, 2011). Factors analysis is a technique that is used to describe variability among observed variables in terms of fewer unobserved underlying dimensions which are called factors.…”