FINANCIAL RATIO ANALYSIS AS A PREDICTOR OF COMPANY FAILURE
FINANCIAL RATIO ANALYSIS AS A PREDICTOR OF COMPANY FAILURE
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Date
1997-02
Authors
ONYA, ONYA EWA
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Abstract
and contribution: The purpose of this study is to empirically investigate the
performance of financial ratios in predicting corporate distresses in Nigeria in the context
of assessing its conformity with the literature in the area. The major contributions of
this research include:
(1) The evidence provided in the study serves as a basic document to the credit
officers in evaluating companies'solvency.
(2) The recommended model can help credit officers in assessing and predicting the
degree of risk attached to the possibility of company failures.
(3) The model for predicting corporate distresses developed by Altman (1968) is
proved by this work not to be workable when applied to companies in Nigeria.
Study Design: Survey method was employed in carrying out the investigation. Neither
questionnaires nor interviews were conducted, only that Annual Financial Statements of
fifty (50) companies were analyzed. Results were analyzed with the aid of models.
Major Findings: Based on the analysis the univariate approach gives only trends of
performance of companies but not a real benchmark or a cut-off level of failure, or
non-failure performance of companies. The multivariate technique performs better since
it is a combination of the univariate ratios. Therefore since it sheds light on companies
health it is thus recommended by this study.
Description
IN PARTIAL FULFILMENT OF THE REQUIREMENT
FOR THE DEGREE OF MASTER OF SCIENCE
(ACCOUNTING AND FINANCE).
Keywords
FINANCIAL,, RATIO,, ANALYSIS,, PREDICTOR,, COMPANY,, FAILURE.