Financial ratios and the prediction of bankruptcy

Jeyhun Abbasov ()

No 1705, Working Papers from Central Bank of Azerbaijan Republic

Abstract: In this work 10 financial ratios of 835 companies (48 companies were default and 787 companies were non-default) were used for prediction of bankruptcy. On the base of different combinations of these ratios which were formed by the taking one ratio from each financial factor such as financial leverage, capital turnover, cash position, etc., 16 z-score models estimated. Unfortunately, there was small compliance for predictability power of these bankruptcy models. On the other hand, we separately used all ratios (for example; X3 – cash/Total Assets, X6 – cash/Sales) classified by the same factor (for X3 and X6, cash position) in different models and found that it doesn’t change the result of the predictability power of the bankruptcy models. Fortunately, this result shows the same pattern with most of the papers in this area.

Keywords: Kappa test; Altman’s z-score; Edmister’s z-score; predictability power; prediction of bankruptcy (search for similar items in EconPapers)
JEL-codes: C21 G33 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2017-12-20
New Economics Papers: this item is included in nep-cfn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:aze:wpaper:1705

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