Our chief ratio selection criteria,
therefore, were that: (1) the ratio be constructed using information available from publicly
released financial statements; (2) the ratio enjoy common use for purposes of security
analysis, as evidenced by being widely cited in financial statement analysis textbooks; (3)
a ratio be conceptually associated with uncertainty concerning firm’s future cash flows;
and (4) that the direction of such an association could be determined from the risk concept
associated with the ratio.