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Analyzing Foreign Financial Statements: The Use and Misuse of International Ratio Analysis


  • Frederick D S Choi

    (New York University)

  • Hisaaki Hino

    (Morgan Guaranty Trust Company)

  • Sang Kee Min

    (Seoul National University)

  • Sang Oh Nam

    (Seoul National University)

  • Junichi Ujiie

    (The Normura Securities Company, Ltd.)

  • Arthur I Stonehill

    (Oregon State University)


Financial ratios, which may be appropriate measures of financial risk and return, are often misused when applied to foreign companies. This is due partly to explainable differences on international accounting principles. A more serious problem, however, is that even when ratios are based on U.S. GAAP, they are misinterpreted because the U.S. investor does not understand a particular foreign environment that influences all financial ratios in that environment. Using Japan and Korea as country examples, this paper analyzes the problem of misuse of international ratio analysis with the hope that investors, security analysts, regulatory authorities, and international business researchers will become more aware of the pitfalls.© 1983 JIBS. Journal of International Business Studies (1983) 14, 113–131

Suggested Citation

  • Frederick D S Choi & Hisaaki Hino & Sang Kee Min & Sang Oh Nam & Junichi Ujiie & Arthur I Stonehill, 1983. "Analyzing Foreign Financial Statements: The Use and Misuse of International Ratio Analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 14(1), pages 113-131, March.
  • Handle: RePEc:pal:jintbs:v:14:y:1983:i:1:p:113-131

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    Cited by:

    1. Ding, Yuan & Richard, Jacques & Stolowy, Hervé, 2008. "Towards an understanding of the phases of goodwill accounting in four Western capitalist countries: From stakeholder model to shareholder model," Accounting, Organizations and Society, Elsevier, vol. 33(7-8), pages 718-755.
    2. Cheung, Joseph K. & Kim, Jeong-Bon & Lee, Jason, 1999. "The Impact of Institutional Characteristics on Return-Earnings Associations in Japan," The International Journal of Accounting, Elsevier, vol. 34(4), pages 571-596, 010.
    3. Hong Bae, Kee & Kim, Jeong-Bon, 1998. "The usefulness of earnings versus book value for predicting stock returns and cross corporate ownership in Japan," Japan and the World Economy, Elsevier, vol. 10(4), pages 467-485, October.
    4. Chang, Chun, 1999. "Capital structure as optimal contracts," The North American Journal of Economics and Finance, Elsevier, vol. 10(2), pages 363-385.
    5. Lainez, Jose A. & Callao, Susana, 2000. "The effect of accounting diversity on international financial analysis: empirical evidence," The International Journal of Accounting, Elsevier, vol. 35(1), pages 65-83, March.
    6. Gordon, Elizabeth A., 2001. "International Accounting: A User Perspective: by Shahrokh M. Saudagaran South-Western College Publishing/Thomson Learning, Cincinnati, Ohio, 2001, xii+228 pp," The International Journal of Accounting, Elsevier, vol. 36(1), pages 117-119, February.

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