Beaver ratio analysis

The Beaver ratio analysis is a financial technique used to assess a company's creditworthiness and potential for bankruptcy. Developed by Edward Beaver in the 1960s, it involves calculating specific financial ratios, such as profitability and liquidity, to evaluate a firm's financial health. These ratios help identify warning signs of financial distress by comparing a company's performance with that of successful and struggling firms. By analyzing these indicators, investors and creditors can make informed decisions about lending or investing, helping to predict the likelihood of a company facing financial difficulties in the future.