An applied research on the financial ratios as predictors of failure by beaver (1996) in predicting bankruptcy in selected Philippine manufacturing firms
Date of Publication
2006
Document Type
Bachelor's Thesis
Degree Name
Bachelor of Science in Management of Financial Institutions
Subject Categories
Finance and Financial Management
College
Ramon V. Del Rosario College of Business
Department/Unit
Financial Management
Thesis Adviser
Annegirl G. Berin
Defense Panel Member
Lawrence T. Co
Christine Rose D. Badillo
Christian Ivan Requinta
Kabigting, Leila Kabigting Calderon
Abstract/Summary
Background: Financial Ratios are one of the simplest instruments often used by firms in gauging their performance. Moreover, via William Beaver's study in the 1960's, it is said that this simple instrument can actually predict the future failure of firms. These ratios, however, vary in predictive power. After testing 30 ratios, Beaver was able to come up with a model consisting of six (6) ratios. A sample of firms in the U.S. was used for Beaver's. An application of the same model in selected manufacturing firms in the Philippines is reported here.
Results: Based on the results from the testing performed by the proponents, it was found out that unlike Beaver's findings that the Ratio 1 (Cash Flow to Total Debt Ratio) has the strongest predictive power, Ratio 2 (Net Income to Total Assets Ratio) turns out to have predicted the best and misclassified the least as far as all six (6) ratios are concerned. A comparison of the results per ratio is presented, showing that Ratio 2's average error for the 5-year period is only 34.6% as compared to 50% of Beaver's Ratio.
Conclusion: With the results of the test, the proponents of the study found out that the Net Income to Total Assets ratio had the greatest influence in predicting bankruptcy, as it had the lowest percentage of incorrect predictions among the six (6) optimal ratios.
Abstract Format
html
Language
English
Format
Accession Number
TU13569
Shelf Location
Archives, The Learning Commons, 12F, Henry Sy Sr. Hall
Physical Description
71, [25] leaves : ill. (some col.) ; 29 cm.
Keywords
Bankruptcy--Philippines; Business failures-- Philippines; Debt--Philippines
Recommended Citation
Ortiz, C., San Gabriel, D. R., & Villanueva, K. C. (2006). An applied research on the financial ratios as predictors of failure by beaver (1996) in predicting bankruptcy in selected Philippine manufacturing firms. Retrieved from https://animorepository.dlsu.edu.ph/etd_bachelors/6289
