Many firms use financial ratio analysis to monitor their control over the operating cycle and to serve as the basis for policy formation. Ratios are based on data produced through the accounting information system which is analyzed according to intuitively plausible concepts in order to make normative judgement about the financial health of the firm. A model is constructed to simulate the operating cycle of a business which generates financial ratios in a manner analogous to the accounting system. It is shown that noise and seasonality produce distortions in the ratio measures are spread throughout the system in a dynamic and complex fashion. Further experiments reveal that plausible control policies based upon financial ratios may make performance worse rather than better. System Dynamics appears to be a useful approach both to redesigning financial ratio measures and testing policies which could enhance out ability to manage such systems.

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Date created

• 1983

Type

• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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ITEM CONTEXT

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b0aa2a699b54f0d19f6a9d93bdbcfa18

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cf82ceba47eedd73f41b00918de16477

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Part of

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Collection

System Dynamic Society Records

Scope and Contents

Collecting area

• This collection is part of the University Archives