Bankruptcy prediction based on the debt ratio
The theory and practice of the financial ratio analysis suggest the existence of an important positive correlation between the debt ratio and the bankruptcy risk. Previous studies conducted on a sample of Romanian companies confirm this hypothesis and recommend the debt ratio as a useful tool for me...
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| Format: | Article |
| Language: | English |
| Published: |
General Association of Economists from Romania
2016-06-01
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| Series: | Theoretical and Applied Economics |
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| Online Access: |
http://store.ectap.ro/articole/1188.pdf
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| Summary: | The theory and practice of the financial ratio analysis suggest the existence of an
important positive correlation between the debt ratio and the bankruptcy risk. Previous
studies conducted on a sample of Romanian companies confirm this hypothesis and
recommend the debt ratio as a useful tool for measuring the bankruptcy risk two years in
advance.
The objective of the current research was to develop a methodology for measuring the
bankruptcy risk that would be applicable for Romanian companies.
The target population consisted of all Romanian companies with annual sales of over
10,000 lei (aprox. 2,200 Euros). The research was performed over all the target population
from Timis County (largest county in Romania).
The study has thus included 53,252 yearly financial statements from the period 2007-2010.
The results of the study allow for the setting of benchmarks, as well as the configuration of
a methodology of analysis.
The proposed methodology cannot predict with perfect accuracy the state of the company,
but it allows for a valuation of the risk level to which the company is subjected. |
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| ISSN: | 1841-8678 1844-0029 |