Can we predict high growth firms with financial ratios?

Srhoj Stjepan ()
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Srhoj Stjepan: Assistant Professor of Economics Faculty of Economics, Business and Tourism, University of Split, Split, Croatia

Financial Internet Quarterly (formerly e-Finanse), 2022, vol. 18, issue 1, 66-73

Abstract: This study attempts to predict high growth firm (HGF) status with financial ratios. Measures related to the firm’s effectiveness in using assets to generate profits, EBITDA margin, debt ratio, equity-to-debt ratio and return on assets are associated with HGF status. While the financial ratios improve HGF prediction, prediction remains modest (AUC = 0.627). This study suggests it is difficult to assume a very good HGF forecast from only financial ratios; therefore, the recommendation for researchers and policymakers building models for predicting HGFs is to incorporate non-financial ratio variables, like the intangible innovation and team-related variables. Finally, study suggests a standardized reporting of prediction performance metrics in the out-of-sample and out-of-time simulation for HGF prediction studies.

Keywords: high growth firms; prediction; financial ratios (search for similar items in EconPapers)
JEL-codes: C53 G3 L1 M21 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:finiqu:v:18:y:2022:i:1:p:66-73:n:4

DOI: 10.2478/fiqf-2022-0006

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