The objective of the recent studies mentioned in this chapter was to develop a ratio model to predict serious financial difficulties (i.e. failure) that can lead, for instance, to bankruptcy. For that purpose discriminant analysis is used in each case (see Section 2.1). In general the authors have initially introduced into their model a large number of ratios in order a) to determine if such difficulties can be predicted with ratios and b) to detect the ratios which are the best indicators of such problems. Two kinds of models are developed: models into which one variable is included to predict failure (univariate models) and models with more variables (multivariate models). Examples of both kinds of models will be dealt with and evaluated.
KeywordsDiscriminant Function Total Asset Debt Ratio Financial Ratio Profitability Ratio
Unable to display preview. Download preview PDF.