Reducing the redundancy of financial ratios and assessing the stability of financial patterns

The purpose of this study was to examine the financial patterns of Australian industrial firms along the lines of Pinches et al.’s (1973; 1975) study. The financial ratios used in prior Australian corporate failure studies were used to derive a reduced set of factors that was predictive of corporate failure (e.g., Castagna & Matolesy, 1981: Booth, 1983). These factors were examined for the short – and long-term stability of these factors. The set of firms used was selected from FINSELECT database, which covered the period from 1989 to 1997. A random list of 199 Australian industrial firms that survived between 1989 and 1997 was selected. A total of thirty-one unique financial ratios were calculated based on the models derived in prior Australian failure prediction studies. These financial rations were factor analysed. The financial factors that were predictive of corporate failure were Return on Investment, Short-Term Liquidity (I and II), Financial Leverage (I and II) and Decomposition Measure.

Grantor dc:publisher

Edith Cowan University, Research Online, Perth, Western Australia

Year dc:date

2000

Author dc:creator

• Hii, Teck K.

• Business failures
• Australia
• Forecasting
• Business forecasting
• Ratio analysis
• Other Business

Repository record dc:identifier

https://ro.ecu.edu.au/theses/1343

OAI identifier oai:identifier

oai:ro.ecu.edu.au:theses-2344