Industry financial ratios - application of factor analysis in Malaysian industrial sector
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Date
2010
Authors
Zulkifli, Nor Aizura
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Abstract
The industrial sector has large influence in the national economy and responsible for
the growth of other industries. The financial ratios are useful indicators of company
performance and financial situation. Financial ratios are extensively used by
investors, creditors, suppliers and government to make better decisions. The purpose
of this study is to identify the most important indicators that contribute to Malaysian
industrial sector and to analyze the financial trend from year 2000 to 2008. Financial
data for industrial companies are collected from Kuala Lumpur Stock Exchange
(KLSE). This includes information from 185 industrial companies and fifteen
financial ratios are selected for this study. The factor analysis is utilized to find
factors among observed financial ratios. Five factors are identified as the main
indicators that contribute to the Malaysian industrial sector. The indicators are
identified as solvency and liabilities factor, asset and debt turnover factor, financial
leverage factor, growth factor and long-term liabilities factor. Factor scores are used
to analyze the financial trend of the industry from year 2000 to 2008.