The Role Of Financial Ratios In Predicting Corporate Bankruptcy A Study Of Distressed Company

Abstract

Examining troubled businesses in particular, this study delves into the critical function of financial measures in foretelling corporate insolvency. With the world's economies in a state of perpetual flux, it is more important than ever for investors, creditors, and management to be alert to any signs of possible financial trouble as soon as possible. This research takes a quantitative approach by looking at a set of financial statistics from troubled businesses over a certain period of time. These ratios include liquidity, profitability, leverage, and efficiency. The study's overarching goal is to determine which financial parameters are best indicators of insolvency using logistic regression analysis. Specifically, the results show that the current ratio, the debt-to-equity ratio, and the return on assets all correlate strongly with the likelihood of bankruptcy. Stakeholders may use the study's practical implications to make educated choices, and it adds to the knowledge on financial distress prediction. In order to reduce the likelihood of insolvency and improve company sustainability, the findings highlight the need of proactive management tactics and ongoing financial monitoring.