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Applying Factor Analysis on the Financial Ratios of Turkey's Top 500 Industrial Enterprises

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Executive Summary

Factor analysis is a method that is used to reduce several variables into fewer dimensions that are called factors. This study conducts factor analysis on the financial ratios of the top 500 industrial enterprises in Turkey for 2010. The purpose of the study is to group the financial ratios into categories and eliminate redundancy among them. The authors' results provide partial support for the textbook classification of financial ratios. Financial ratios are valuable tools in understanding and monitoring a company's financial position and performance. They ease comparison because they control for the effect of size on the financial variables. Financial ratios are generally broken into categories according to the information they provide.

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