Data in prediction of insolvency: inferential univariate study applied to spanish firms

Abstract

The objective of this study is to make estimations which allow the establishment of significant relationships between determined financial ratios and company insolvency. The sample was taken from open Spanish companies which do not pertain to the financial or insurance sector. The results show that various accountancy ratios are able to classify companies as solvent or insolvent with a 95% degree of certainty when taken from the previous year to failure. The Rate of Return on Assets, Profit Margin from the Operating Result and Cover for Financial Expenses were those indicators which provided the strongest discriminant power. In general, the results reaffirm research by previous authors, such as the low predicting capacity of liquidity ratios and the high predicting capacity of the rate of profitability and debt, in that order. It was therefore concluded that univaried models show significant capacity to predict the risk of insolvency. Besides that, these models count on greater practicability in the process of estimation and implementation, in contrast to the multivaried models.

Keywords

• fracaso empresarial
• insolvencia
• predicción de quiebras
• índices financieros
• business failure
• insolvency
• prediction of bankruptcy
• financial ratios