- 44 -


APPENDIX A: The Ratios

ACCRUAL RATIOS

  Liquidity

    - quick ratio
        = current assets less inventories / current liabilities
    - defensive interval measure
        = current assets less inventories / daily expenditures to
                                            operations
    - net working capital to total asset

  Capital Adequacy

    - total liabilities / sales
    - long-term debt to equity
    - times interest earned
        = earnings before interest and taxes plus depreciation /
          interest

  Profitability

    - return (after interest and taxes) on equity
      = net income / common equity
    - return on total assets
    - operating margin / sales

  Efficiency (turnover ratios)

    - inventory turnover period
        = average inventory / cost of goods sold
    - accounts receivable turnover period
        = receivables / sales

  Operating Leverage

    - labor intensiveness
        = personnel expenditures / adjusted real-term fixed assets
    - variable costs / fixed costs

  Riskiness

  Volume

    - growth rate
        = long-term growth rate of deflated sales
    - size
        = firm's total assets in proportion to the largest firm
          (annual figures)



                           - 45 -


CASH FLOW RATIOS

   - cash net income (cash margin II) divided by cash from sales
   - cash operating income (cash margin Ib) divided by total assets
   - cash outflow to capital investments divided by cash from sales
   - cash outflow to materials & supplies and wages & salaries
     divided by cash from sales
   - cash net income (cash margin II) divided by interest bearing
     debt (average)
   - cash outflow to interest payments divided by cash operating
     income (cash margin Ib)


MARKET-BASED RATIOS

  Firm Ratios

   - dividend payout ratio
       = dividends per share / earnings per share

  Combined Ratios

   - dividend yield
   - E/P (inverse of price per earnings)
   - market to book ratio
       = stock price per share / book value per share

  Pure Market Ratios

   - return on the security (capital gains and dividend yield)
   - security's beta
   - security's total risk



                           - 46 -


APPENDIX B: Varimax-rotated Factor Pattern for the Averages of the
            Ratios 1974-1984

      FACT1  FACT2  FACT3  FACT4  FACT5
X3   0.903   .      .      .      .     net work. cap. to tot. ass.
X12  0.777   .      .      .      .     labor intensiveness
X6   0.717   .      .      .      .     times interest earned
X1   0.717  0.418   .      .     0.338  quick ratio
X4  -0.684   .    -0.372  0.329   .     total liabilities/sales

X17   .     0.912   .      .      .     cash margin Ib / total ass.
X16   .     0.905   .      .      .     cash net income / cash sales
X20   .     0.788  0.309   .      .     cash netinc. / int bear debt
X21  0.505  0.714   .      .      .     cash to inter / cash marg Ib
X10   .     0.659   .    -0.511   .     inventory turnover period
X19  0.353 -0.461  0.302  0.357   .     cash to mat & w / cash sales

X24  0.362   .     0.861   .      .     E/P-ratio
X7    .     0.302  0.646   .      .     return on equity
X26   .      .     0.620 -0.519   .     return on the security
X5  -0.436   .    -0.491   .      .     long-term debt to equity

X27   .      .      .     0.873   .     security's beta
X15   .      .      .     0.834   .     size

X2    .      .      .      .     0.844  defensive interval measure
X11   .      .      .      .    -0.835  acc. rec. turnover period

X14   .      .      .      .      .
X9  -0.369   .      .      .      .
X22   .      .      .      .      .
X8   0.397  0.350  0.429   .      .
X18   .      .      .      .      .
X28   .      .      .      .      .
X23   .      .      .      .      .
X13   .      .      .      .    -0.323
X25   .      .      .     0.423  0.390

NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'



                           - 47 -


      FACT6  FACT7  FACT8  FACT9  FACT10
X3    .      .      .      .      .
X12   .      .      .      .      .
X6   0.316  0.360   .      .      .
X1    .      .      .      .      .
X4   0.332   .      .      .      .
X17   .      .      .      .      .
X16   .      .      .      .      .
X20   .      .      .      .      .
X21   .      .      .      .      .
X10   .      .      .      .      .
X19   .      .      .      .     0.327
X24   .      .      .      .      .
X7   0.307   .      .      .      .
X26   .      .      .      .      .
X5    .      .      .     0.457   .
X27   .      .      .      .      .
X15   .      .      .      .      .
X2   0.312   .      .      .      .
X11   .      .      .      .      .

X14  0.873   .      .      .      .     growth rate
X9   0.729   .      .      .      .     operating margin

X22   .     0.928   .      .      .     dividend payout ratio
X8    .     0.581   .      .      .     return on total assets

X18   .      .     0.791   .      .     cash to cap inv / cash sales
X28   .      .    -0.743   .      .     security's total risk

X23   .      .      .     0.864   .     dividend yield

X13   .      .      .      .     0.824  variable costs/fixed costs
X25   .      .      .      .     0.500  market to book ratio

NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'



                           - 48 -


VARIANCE EXPLAINED BY EACH FACTOR

FACTOR1   FACTOR2   FACTOR3   FACTOR4   FACTOR5
4.403194  4.238279  2.715487  2.622527  2.241442
FACTOR6   FACTOR7   FACTOR8   FACTOR9   FACTOR10
2.109226  1.929188  1.510821  1.400599  1.336602

Cumulative Proportion of total variance

FACTOR1   FACTOR2   FACTOR3   FACTOR4   FACTOR5
0.2451    0.4264    0.5268    0.6150    0.6760
FACTOR6   FACTOR7   FACTOR8   FACTOR9   FACTOR10
0.7317    0.7770    0.8144    0.8463    0.8753

FINAL COMMUNALITY ESTIMATES: TOTAL =  24.507366

      X1        X2        X3        X4        X5        X6        X7
0.908735  0.892475  0.936411  0.909261  0.820585  0.893423  0.937337
      X8        X9       X10       X11       X12       X13       X14
0.903409  0.910361  0.900782  0.813549  0.860574  0.829672  0.871482
     X15       X16       X17       X18       X19       X20       X21
0.863071  0.937182  0.941458  0.743830  0.859216  0.893015  0.956612
     X22       X23       X24       X25       X26       X27       X28
0.905599  0.877821  0.930363  0.795191  0.853346  0.832598  0.730011



                           - 49 -


APPENDIX C: Varimax-rotated Factor Pattern for the Averages of the
            Ratios 1974-1978

      FACT1  FACT2  FACT3  FACT4  FACT5
X24  0.938   .      .      .      .     E/P-ratio
X7   0.812   .      .      .      .     return on equity
X8   0.622   .     0.603   .      .     return on total assets
X26  0.516   .      .     0.474 -0.420  return on the security
X1   0.494   .      .      .      .     quick ratio
X4  -0.584   .      .    -0.463  0.370  total liabilities/sales
X5  -0.748   .      .      .      .     long-term debt to equity

X17   .     0.901  0.302   .      .     cash margin Ib / total ass.
X16   .     0.875   .    -0.306   .     cash net income / cash sales
X20   .     0.851   .      .      .     cash netinc / int bear debt
X21   .     0.684  0.575   .      .     cash to inter / cash marg Ib
X10   .     0.574   .      .    -0.459  inventory turnover period

X22   .      .     0.872   .      .     dividend payout ratio
X6   0.427   .     0.803   .      .     times interest earned
X12  0.375   .     0.634   .      .     labor intensiveness
X3   0.384 -0.414  0.463  0.351   .     net work. cap. to tot. ass.

X13   .      .      .     0.848   .     variable costs/fixed costs
X19   .      .      .     0.793   .     cash to mat & w / cash sales
X9    .      .      .    -0.764   .     operating margin

X15   .      .      .      .     0.841  size
X27   .      .      .      .     0.821  security's beta
X25   .      .      .      .     0.548  market to book ratio

X11   .      .      .      .      .
X2    .      .      .    -0.376   .
X28   .      .      .      .      .
X23  0.468   .      .      .      .
X14   .      .      .      .      .
X18   .      .      .      .      .

NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'



                           - 50 -


      FACT6  FACT7  FACT8  FACT9  FACT10
X24   .      .      .      .      .
X7    .      .      .      .      .
X8    .      .      .      .      .
X26   .      .      .      .      .
X1  -0.434   .      .      .     0.485
X4    .      .      .      .    -0.330
X5    .      .      .      .      .
X17   .      .      .      .      .
X16   .      .      .      .      .
X20   .      .      .      .      .
X21   .      .      .      .      .
X10   .    -0.306   .      .     0.378
X22   .      .      .      .      .
X6    .      .      .      .      .
X12   .      .      .      .     0.322
X3    .      .      .      .     0.420
X13   .      .      .      .      .
X19   .      .      .      .      .
X9    .      .     0.349   .    -0.305  (operating margin)
X15   .      .      .      .      .
X27   .      .      .      .      .
X25   .      .      .     0.511   .

X11  0.941   .      .      .      .     acc. rec. turnover period
X2  -0.825   .      .      .      .     defensive interval measure

X28   .     0.875   .      .      .     security's total risk
X23   .    -0.560   .      .     0.315  dividend yield

X14   .      .     0.933   .      .     growth rate

X18   .      .      .     0.871   .     cash to cap inv / cash sales



                           - 51 -


VARIANCE EXPLAINED BY EACH FACTOR

FACTOR1   FACTOR2   FACTOR3   FACTOR4   FACTOR5
4.378313  3.649694  3.240343  3.071599  2.625934
FACTOR6   FACTOR7   FACTOR8   FACTOR9   FACTOR10
2.096879  1.632641  1.501724  1.378910  1.248399
    
Cumulative Proportion of total variance

FACTOR1   FACTOR2   FACTOR3   FACTOR4   FACTOR5
0.2661    0.4200    0.5305    0.6154    0.6803
FACTOR6   FACTOR7   FACTOR8   FACTOR9   FACTOR10
0.7402    0.7891    0.8282    0.8597    0.8866

FINAL COMMUNALITY ESTIMATES: TOTAL =  24.824436

      X1        X2        X3        X4        X5        X6        X7
0.872644  0.894561  0.914550  0.900938  0.765444  0.942703  0.908289
      X8        X9       X10       X11       X12       X13       X14
0.922396  0.921668  0.935987  0.928411  0.907007  0.877017  0.914587
     X15       X16       X17       X18       X19       X20       X21
0.834947  0.930683  0.941563  0.843185  0.885844  0.935010  0.965654
     X22       X23       X24       X25       X26       X27       X28
0.844763  0.876725  0.922139  0.748515  0.825211  0.850206  0.813790



                           - 52 -


APPENDIX D: Varimax-rotated Factor Pattern for the Averages of the
            Ratios 1979-1984

      FACT1  FACT2  FACT3  FACT4  FACT5
X12  0.912   .      .      .      .     labor intensiveness
X6   0.817  0.365   .      .      .     times interest earned
X22  0.812   .      .      .      .     dividend payout ratio
X3   0.688   .      .      .      .     net work. cap. to tot. ass.
X4  -0.564   .    -0.332  0.504   .     total liabilities/sales

X20   .     0.922   .      .      .     cash netinc / int bear debt
X16 -0.316  0.741   .      .      .     cash net income / cash sales
X21  0.580  0.739   .      .      .     cash to inter / cash marg Ib
X1    .     0.682   .      .    -0.430  quick ratio

X7    .      .     0.854   .      .     return on equity
X24   .      .     0.836   .      .     E/P-ratio
X8   0.429   .     0.619   .      .     return on total assets

X9  -0.355   .      .     0.794   .     operating margin
X14   .      .      .     0.741   .     growth rate
X5  -0.377   .      .     0.532   .     long-term debt to equity

X11   .      .      .      .     0.906  acc. rec. turnover period
X2    .      .      .      .    -0.868  defensive interval measure

X10   .      .      .      .      .
X17   .     0.509   .      .      .
X19   .      .      .    -0.408   .
X25   .      .      .      .      .
X13   .      .      .      .     0.356
X27   .      .     0.372   .      .
X15   .      .      .     0.340   .
X26   .      .     0.448   .    -0.310
X23   .      .      .      .      .
X28   .      .      .      .      .
X18   .      .      .      .      .

NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'



                           - 53 -


      FACT6  FACT7  FACT8  FACT9  FACT10
X12   .      .      .      .      .
X6    .      .      .      .      .
X22   .      .      .      .    -0.338
X3    .      .      .      .      .
X4    .      .      .      .      .
X20   .      .      .      .      .
X16  0.303   .      .      .      .
X21   .      .      .      .      .
X1    .      .      .      .      .
X7    .      .      .      .      .
X24   .      .      .      .      .
X8    .      .      .     0.361   .
X9    .      .      .      .      .
X14   .      .      .      .      .
X5    .      .      .     0.430   .
X11   .      .      .      .      .
X2    .      .      .      .      .

X10  0.957   .      .      .      .     inventory turnover period
X17  0.574   .      .     0.436   .     cash margin Ib / total ass.
X19 -0.650   .      .      .      .     cash to mat & w / cash sales

X25   .     0.794   .      .      .     market to book ratio
X13   .     0.752   .      .      .     variable costs / fixed costs

X27   .      .     0.817   .      .     security's beta
X15   .      .     0.739   .      .     size
X26   .      .    -0.578 -0.302   .     return on the security

X23   .      .      .     0.822   .     dividend yield

X28   .      .      .      .     0.874  security's total risk
X18   .    -0.433   .      .    -0.600  cash to cap inv / cash sales

NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'



                           - 54 -


VARIANCE EXPLAINED BY EACH FACTOR

    
FACTOR1   FACTOR2   FACTOR3   FACTOR4   FACTOR5
4.316926  3.367783  2.741719  2.475085  2.309695
FACTOR6   FACTOR7   FACTOR8   FACTOR9   FACTOR10
1.996683  1.995761  1.940643  1.815787  1.767355
    
Cumulative Proportion of total variance

FACTOR1   FACTOR2   FACTOR3   FACTOR4   FACTOR5
0.2349    0.4115    0.5052    0.5891    0.6673
FACTOR6   FACTOR7   FACTOR8   FACTOR9   FACTOR10
0.7258    0.7803    0.8246    0.8580    0.8831

FINAL COMMUNALITY ESTIMATES: TOTAL =  24.727437
    
      X1        X2        X3        X4        X5        X6        X7
0.905749  0.880392  0.846420  0.909287  0.818603  0.916645  0.940584
      X8        X9       X10       X11       X12       X13       X14
0.844907  0.952743  0.952222  0.912810  0.903211  0.818652  0.888208
     X15       X16       X17       X18       X19       X20       X21
0.836716  0.937781  0.915702  0.776996  0.874437  0.932460  0.950174
     X22       X23       X24       X25       X26       X27       X28
0.888035  0.790788  0.849289  0.846701  0.863722  0.895879  0.878326



                           - 55 -


APPENDIX E: Transformation Matrix 1974-78 to 1979-84 (L12)

          1       2       3       4       5 
   1   0.185   0.077   0.905* -0.241  -0.156
   2  -0.185   0.836*  0.074   0.046   0.187
   3   0.874*  0.171  -0.059   0.095   0.127
   4   0.080   0.121  -0.112  -0.344   0.106
   5  -0.150   0.220  -0.006   0.023  -0.054
   6   0.042  -0.161   0.070  -0.036   0.912*
   7   0.052   0.362  -0.170  -0.062  -0.019
   8   0.122   0.019   0.108   0.852* -0.075
   9   0.131   0.196  -0.268  -0.101  -0.153
  10   0.321  -0.081  -0.207  -0.264  -0.224

          6       7       8       9      10
   1  -0.019   0.007   0.008  -0.241  -0.026
   2   0.390   0.103  -0.113   0.213  -0.062
   3  -0.158  -0.143   0.073   0.348  -0.083
   4  -0.434   0.743  -0.235  -0.019   0.202
   5  -0.293   0.119   0.908*  0.003  -0.019
   6   0.126   0.004   0.142  -0.313  -0.028
   7  -0.262  -0.464  -0.090  -0.468   0.567
   8   0.014   0.354  -0.047  -0.308   0.136
   9  -0.052   0.018  -0.066  -0.563  -0.718
  10   0.679   0.248   0.258  -0.217   0.302



                           - 57 -


APPENDIX G: The Firms Included in the Sample

 TOL 31 Manufacture of Food, Beverages and Tobacco:
   Huhtamäki, Rettig, Suomen Sokeri

 TOL 32 Textile, Wearing Apparel and Leather Industries:
   Finlayson, Lassila & Tikanoja, Tamfelt, Suomen Trikoo

 TOL 34  Manufacture of Paper and Paper Products, Printing and
         Publishing:
   Enso-Gutzeit, Kajaani, Kaukas, Kemi, Kymi-Strömberg, Otava,
   Wilh. Schauman, G.A. Serlachius, Tampella, Yhtyneet Paperitehtaat

 TOL 36  Manufacture of Non-metallic Mineral Products, Except
         Products of Petroleum and Coal:
   Lohja, Partek

 TOL 38  Manufacture of Fabricated Metal Products, Machinery and
         Equipment:
   Fiskars, Instrumentarium, Nokia, Rauma-Repola, W. Rosenlew,
   Wärtsilä;

 TOL 61 Wholesale Trade:
   Ford, Kesko, Rake, Tamro, Talous-Osakekauppa

 TOL 62  Retail Trade:
   Stockmann

 TOL 71  Transport and Storage:
   Effoa        

Goto: The previous section (References)
Goto: The contents section of Salmi, Virtanen and Yli-Olli (1990)
Goto: Other scientific publications by Timo Salmi in WWW format

Departments of Accounting and Mathematics, University of Vaasa,
Finland

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