Beaver, William H., "Financial Ratios as Predictors of Failure", Journal of Accounting Research, Vol. 4, Supplement, (1966), pp. 71-111.

Introduction: At the turn of the century, ratio analysis was in its embryonic state. It began with the development of a single ratio, the current ratio, for a single purpose -- the evaluation of credit-worthiness. Today ratio analysis involves the use of several ratios by a variety of users -- including credit lenders, credit-rating agencies, investors, and management. In spite of the ubiquity of ratios, little effort has been directed toward the formal empirical verification of their usefulness.

The usefulness of ratios can only be tested with regard to some particular purpose. The purpose chosen here was the prediction of failure, since ratios are currently in widespread use as predictors of failure. This is not the only possible use of ratios but it is a starting point from which to build an empirical verification of ratio analysis.