Discovering the optimal set of ratios to use in accounting-based models
by Duarte Trigueiros; Carolina Sam
International Journal of Society Systems Science (IJSSS), Vol. 10, No. 2, 2018

Abstract: Ratios are the prime tool of financial analysis. In predictive modelling tasks, however, the use of ratios raises difficulties, the most obvious being that, in a multivariate setting, there is no guarantee that the collection of ratios eventually selected as predictors will be optimal in any sense. Using, as starting-point, a formal characterisation of cross-sectional accounting numbers, the paper shows how the multilayer perceptron can be trained to create internal representations which are an optimal set of ratios for a given modelling task. Experiments suggest that, when such ratios are utilised as predictors in well-known modelling tasks, performance improves on that reported by the extant literature.

Online publication date: Sun, 24-Jun-2018

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