Sorting out the financials: Making economic sense out of statistical factors

Igor Lončarski and Luka Vidovič

Finance Research Letters, 2019, vol. 31, issue C, 110-118

Abstract: In this paper we explore systematic and efficient use of a large amount of financial statement data most often used by financial analysts for the valuation purposes in terms of relative valuation (multiples). We use principal component analysis to analyze financial statement data and/or ratios at a company level. We transform financial statement data into new variables that exhibit distinct economic interpretations and can be considered as value drivers reflecting profitability, growth prospects, and risk.

Keywords: Financial statements; Financial ratios; Corporate valuation; Principal component analysis; Economic interpretation (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:31:y:2019:i:c:p:110-118

DOI: 10.1016/j.frl.2019.04.009

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