Accounting Ratios

High-Throughput Asset Pricing ArXiv ID: 2311.10685 “View on arXiv” Authors: Unknown Abstract We apply empirical Bayes (EB) to mine data on 136,000 long-short strategies constructed from accounting ratios, past returns, and ticker symbols. This ``high-throughput asset pricing’’ matches the out-of-sample performance of top journals while eliminating look-ahead bias. Naively mining for the largest Sharpe ratios leads to similar performance, consistent with our theoretical results, though EB uniquely provides unbiased predictions with transparent intuition. Predictability is concentrated in accounting strategies, small stocks, and pre-2004 periods, consistent with limited attention theories. Multiple testing methods popular in finance fail to identify most out-of-sample performers. High-throughput methods provide a rigorous, unbiased framework for understanding asset prices. ...

Accounting statement analysis at industry level. A gentle introduction to the compositional approach ArXiv ID: 2305.16842 “View on arXiv” Authors: Unknown Abstract Compositional data are contemporarily defined as positive vectors, the ratios among whose elements are of interest to the researcher. Financial statement analysis by means of accounting ratios a.k.a. financial ratios fulfils this definition to the letter. Compositional data analysis solves the major problems in statistical analysis of standard financial ratios at industry level, such as skewness, non-normality, non-linearity, outliers, and dependence of the results on the choice of which accounting figure goes to the numerator and to the denominator of the ratio. Despite this, compositional applications to financial statement analysis are still rare. In this article, we present some transformations within compositional data analysis that are particularly useful for financial statement analysis. We show how to compute industry or sub-industry means of standard financial ratios from a compositional perspective by means of geometric means. We show how to visualise firms in an industry with a compositional principal-component-analysis biplot; how to classify them into homogeneous financial performance profiles with compositional cluster analysis; and how to introduce financial ratios as variables in a statistical model, for instance to relate financial performance and firm characteristics with compositional regression models. We show an application to the accounting statements of Spanish wineries using the decomposition of return on equity by means of DuPont analysis, and a step-by-step tutorial to the compositional freeware CoDaPack. ...