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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.


Author Posting. © College of Business and Public Affairs, 1994. This article is posted here by permission of the College of Business and Public Affairs for personal use, not for redistribution. The article was published in the Journal of Business and Economic Perspectives, Volume XX, Issue 1, 1994.

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