Faslnāmah-i Pizhūhish/Nāmah-i Iqtisādī (Sep 2013)
A Study on the Capability of Financial Ratios in Predicting the Insolvency of Accepted Companies in Tehran Stock Exchange
Abstract
The main purpose of this study is to empirically study the financial efficiency ratios to examine the insolvency of activities of listed companies on Tehran Stock Exchange. The sample of the study consists of accepted companies in Tehran Stock Exchange. To achieve our goal, a sample of 30 successful companies and 30 unsuccessful companies is selected. The criteria for selecting successful companies was the simple Tobin indicator and for unsuccessful companies was article 141 of trade law. After collecting data, the financial ratios were examined using the statistical methods of multiple discriminating analysis and logit analysis for one and two years before the halt of operations of the companies. The results revealed that financial ratios of immediate assets to current liabilities, operating income to total assets excluding current debt, cash plus short-term investment to total assets, and average inventories to sales were factors contributing to the division of companies into successful and unsuccessful ones. The comparison test of the success ratio in the two samples shows that the logit method compared to multiple discriminating analyses predicted more accurately the halt of the operations for one year before the operation halt. However, there wasn’t significant difference between the two statistical methods for two years before the discontinuation of operations.
