The Prediction Of Company Failure Using Financial And Non-Financial Essay

The Prediction Of Company Failure Using Financial And Non-Financial Information - Essay eccentricStudies have shown that monetary difficulty arise mainly due to as a result of serial publication of errors and misjudgment on the part of management. Moreover, interrelated weakness raise also be attributed to management. Ratio summary can be used to predict whether a firm will go bankrupt or not, because the gull of potential financial distress are generally evident in a ratio analysis long before the firm actually cuckolds.How frequently businesses fail in United States? A hefty number of businesses fail each year. One thing is very cardinal to note here that the misery rate per 1,000 businesses fluctuates depending upon the economy, but the average liability tended to increase over time. Though business failure is more(prenominal) common among smaller firms, large firms are not immune to it. But, some firms are too important or too big to be allowed to fail. So governmental intervention or mergers are often used as methods to avoid failure. For example, the US government gave aid to Chrysler in the 1980s to avoid its failure. other example is that of merger of Goodbody company with Merril Lynch to avoid the formers bankruptcy which would have rigid the accounts of 2, 25,000 customers while bankruptcy settlement was being worked out. WorldCom, Enron, Kmart, Global Crossing, Arthur Andersen, Polaroid, Qwest and Xerox are a few of the reputed companies which failed. nearly of the above mentioned companies are fortune 500 companies that were not supposed to collapse. The question to be answered is why companies fail? Market turbulence, bad economy, a weak dollar, competitive subterfuge forces etc are some of the readymade answers which a chief operating officer of the failed company would generally offer. A company can fail due to both financial and non financial reasons. Some of the financial reasons for company failure are low liquidity, low profitab ility, lower value of shares, softness to meet current debts, high ratio of loan capital compared to equity