The Geometry of Financial Ratios

Byung T. Ro
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Byung T. Ro: Purdue University

Chapter 9 in The Geometry of Accounting, 2025, pp 201-222 from Springer

Abstract: Abstract This chapter examines financial ratios in geometric settings. Financial ratios do not differ much from ratios in general, except that they are generated with financial numbers. Although generating and presenting financial ratios is not a task of accounting, this chapter examines the subject since the financial numbers used to generate them come from accounting. These financial numbers are the level 2 or level 3 aggregates of accounting measures discussed in Chap. 8 . A relevant geometric setting for examining financial ratios is a two-dimensional Cartesian space since every financial ratio is defined by a pair of financial numbers—one for its dividend (numerator) and one for its divisor (denominator). The financial ratios examined in this chapter are those called accounting ratios, defined only with financial numbers from accounting. The so-called market-based financial ratios such as the price-to-earnings (P/E) ratio and the price-to-book value (P/B) ratio are not discussed since not all the numbers used to generate them come from accounting.

Date: 2025
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DOI: 10.1007/978-3-031-88892-2_9

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