Ratio Versus Regression Analysis: Some Empirical Evidence in Brazil

This work compares the traditional methodology for ratio analysis, applied to a sample of Brazilian firms, with the alternative one of regression analysis both to cross-industry and intra-industry samples. It was tested the structural validity of the traditional methodology through a model that represents its analogous regression format. The data are from 156 Brazilian public companies in nine industrial sectors for the year 1997. The results provide weak empirical support for the traditional ratio methodology as it was verified that the validity of this methodology may differ between ratios.