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Research Paper | Accounting | Philippines | Volume 8 Issue 4, April 2019 | Rating: 6.6 / 10

Predicting Corporate Failures Using Multi Discriminant Analysis and Current Ratio: An Empirical Application to Philippines Stock Exchange

Cerenio Adriatico

Abstract: . Corporate failure models can be broadly classified into two groups: quantitative models, which are mainly based on published financial information and qualitative models, which are based on an internal assessment of the company concerned. Both types attempt to determine characteristics, whether financial or non-financial, which can then be used to distinguish between surviving and failing companies. This study sought to predict companies that are potential to corporate financial distress utilizing the Altman Z- Score model and current ratio. Forty-five companies currently listed on the Philippine Stock Exchange were randomly selected, and their corresponding audited financial statements published online were downloaded and assessed using the financial ratios. Findings of the study revealed, 35 companies have been chosen potential for becoming financially distressed when subjected to the Altman Z-score model. On the other hand, 12 companies were also found experiencing financial difficulties based on current ratio analysis. Accordingly, these companies have classified either failure or non-failure based on Altman and current ratio. The study concluded both the Altman Z-Score Model and current ratio are financial analytical tools investors and financial analysts can use in assessing the financial health of the company before investing or buying the stock. For businesses having low or declining Z-index, requires an in-depth analysis of the accounts in the financial statements to verify the cause of the problem or potential risk.

Keywords: financial distress, Altman Z-Score Model, Current Ratio, failure companies, non-failure companies

Edition: Volume 8 Issue 4, April 2019,

Pages: 644 - 648