The impact of financial ratios dynamics on company's performance

In credit risk assessment, many models and methods are used. Many approaches use financial ratios to establish company's performance as the data is relatively homogenous and easily accessible. Usually the assessing institution (e.g. bank) sets a specified range for a given financial ratio. The level of ratio within that range is desirable and is supposed to prove that company is in good condition. The paper investigates the idea that it is not the absolute level of the ratio, or the range they fall into, that is informative but the change (quarterly or annually) that brings the most important hints regarding actual situation of the company. The changes (positive / negative) between the values of chosen annual financial ratios and their influence on future performance of the company in one- and two-year horizon as well as their ultimate survival or default are presented.