Journal of Business and Economic Perspectives
Financial ratios play a central role in the quantitative analysis of commercial banks. Bank administrators, shareholders, and .financial analysts use .financial ratios to evaluate the financial characteristics of bank activity such as solvency and peifonnance. The challenge is not in computing a specific ratio but in selecting the ratios that capture the primary .financial characteristics of bank activity. The purpose of this study is to (1) explore the financial characteristics of commercial bank activity captured in ratios and, (2) examine the stability of the .financial characteristics over time. Results indicate financial ratios presently used by bank rating agencies and industry financial analysts may not be measuring bank characteristics as once a.uumed. Caution must be exercised when evaluating bank perfonnance with .financial ratios.
Zeller, T and B Stanko. "Financial Ratios for the Commercial Banking Industry: Do They Measure What You Think?" Journal of Business and Economic Perspectives XX(1), 1994.
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