The Use of Financial Ratios to Predict Acquisition Targets

This study endeavors to inspect the complete financial web of those Indian companies, which were acquired during 1990-2013. This is to observe if the contents of the acquired companies¿ financial statements will provide me with a useful measuring yardstick for bench-marking and to identify further companies, which face a high chance of becoming an acquisition target. The research concludes that the ratios which have the highest predictive power are the profitability ratios and solvency ratios. Among these, return on capital employed and debt equity ratio were seen to classify the companies most accurately.Due to the unavailability of certain financial ratios, the variables size is limited. Inclusion of other variables, perhaps even non-financial variables, could have provided more useful insights. This study is also limited to the manufacturing sector only. Companies that are looking to acquire, can depend on my results and narrow down their targets. Firms that want to avoid being acquired, can strategically strategically change those particular ratios, that they know are being used by acquirers to target them.