The Normal Distribution of Financial Accounting Ratios as Indicators of Business Status

Abstract

The manner in which financial ratios are distributed overtime in business organizations is often regarded as very useful indicators of the growth, performance, and financial status of the business.  However, this paper attempts to reinforce this claim by using the normal distribution statistical model to analyse the structure of financial ratios.  It adopts the case study approach to provide an in-depth analysis of the normality of the financial ratios of Vitafoam Plc.  The secondary data generated from the company’s annual report and accounts were tested for normality using method of moment. It was found that financial ratios were normally distributed. On the basis of our study findings, we conclude, that financial ratios are reliable business status indicators. We therefore recommend the application of financial ratios in the evaluation of business performance, growth and financial status.

KEY WORDS:   Financial Ratios, Normal Distribution, Business Status Indicators