MEASURING FIRM PERFORMANCE USING FINANCIAL RATIOS: A SUPERVISED LEARNING APPROCH

Abstract

Financial ratio are ratio of two. selected numerical values taken from an enterprise's financial statement financial ratios allow for comparisons between companies, between industries, between different time periods for one company, between a single company and its industry average. The purpose of ratio analysis is to analyse performance of a company.. The purpose of ratio analysis is to analyse performance of a company. Financial ratios highlights the importance of management of organization. Financial ratios should be computed periodically to analyse the areas of weakness and strength and ratio analysis should be used to measure firm performance of organization. The project aims to predict the financial performance of banks and industries by the usage ofmultiple linear regression. The ratio ofReturn on Assets ROA is used for evaluating the banks’ performance and is considered as the dependent variable for the approach of Multi Linear Regression. Multiple Linear Regression (MLR) is predictive analysis used to predict a Return on Assets. We use multiple linear regression to. predict financial ratios such as J profitability and liquidity ratios. To import and use training data set we use scikit-leam. Scikit leam is a machine learning library for python. Scikit- learn provide^ functionality of regression both linear and logistic regression .we use linear regression functionality ofscikit-leam to predict the firm performance. Scikit-leam helps in predicting results. ROA is. analysed by using Scikit Machine Learning Library. ROA is calculated in order to analyse the -financial performance of a firm. . The proposed method is tested on data set of National Bank of Pakistan for the time duration of 2013-2016. Result obtained by the method is the financial health of the bank by comparing it to the performance of past 5 years. The prediction that is done shows that the performance of the bank is varying due to some ratios that influence the economic health ofthe firm