Data envelopment analysis applied to financial statements

Ratio analysis has been a tool of analysts for as long as financial statements have been prepared. Yet its limitation to considering only one numerator and one denominator severely limits its usefulness. This paper extends the traditional ratio analysis to permit the incorporation of any number of dimensions of performance, using data envelopment analysis. The method produces measures of corporate efficiency, together with a wealth of supporting information. The strengths and weaknesses of the method applied to financial statements are appraised.