Traditional Ratio Analysis
The detection of company operating and financial difficulties is a subject which has been
particularly amenable to analysis with financial ratios. Prior to the development of quantitative
measures of company performance, agencies were established to supply a qualitative type of
information assessing the credit-worthiness of particular merchants. (For instance, the
forerunner of the well-known Dun & Bradstreet, Inc. was organized in 1849 in Cincinnati, Ohio,
in order to provide independent credit investigations). Formal aggregate studies concerned with
portents of business failure were evident in the 1930’s.