Question

Banks use financial ratios to determine the credit worthiness o a borrower. Explain the difference between cross-sectional and time-series analysis when comparing financial ratios.

Answer 1

Most of the banks uses financial ratios to analyis and determine the credit worthiness of the borrower because credit worthiness describes the actual value of the borrower that shows even in future the borrower repaid all the amount of the banks. So, Most of the banks evaluate credit worthiness of the customer.

Cross Sectional -

Cross sectonal is a type of observation that analyis data from population and at the representive subset at the specific time and without taking difference in time are known as Cross sectional. For example - Purchase Volume, Purchase cost and expense incurred in the last month.

If we can do expand on the same as daily check of Purchase volume and purchase cost over a time from several months then it would be time series for purchase and expense. Because different methods are applied to use these types of data.

The biggest disadvantage of cross sectional is to routine data is not desined to give answer of the specific questions.

Time series Analysis -

When data is collected from the same variable to analyis the data over a period of time i.e. Monthly, Quarterly, Half yearly and annually Is called time series analyis.

Data for payment of creditors and debtors for a period of several years.

Time series analysis is the best comprises method for analising time series data in order to find out the extract meaningful value of statistics and many other characteristics of the data. Time series forecasting is the best use of a model to stop or predict the future values which are based on last finding or previously observed values are known as time series analysis.