Role of Financial Ratios in the Economy

Mohammad Benny Alexandri

Abstract: This study aims to (1) how are the benefits of financial ratio analysis (2) how financial ratios can predict bond ratings (3) how financial ratios can predict distress in banks (4) how financial ratios can predict changes in profit and loss (5) how financial ratios can show the effect of mergers on financial performance. Research Results A set of financial ratios (leverage, liquidity, solvency, profitability, and productivity) have the ability to form models to predict bond ratings. A ratio has no meaning if it stands alone, but must be compared with the financial ratio in the previous period so that it can know the trends during a certain period. Besides being compared with the ratio of the previous period, it can also be compared with the financial ratios of other companies with the same type of company.

Keywords: Financial Ratios, Analysis, Distress, Profit, and Loss