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Understanding corporate failure / Abd Razak Md Jais

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  • Hf Commerce


This dissertation consists of four chapters. It attempts to identify those businesses which are in financial distress by developing a model based on Multiple Discriminant Analysis (MDA). Particular attention is paid on the Cash Flow ratios to identify whether these ratios are significant in assessing the financial strength of a company. Paired-sample of 20 companies (failed and non-failed) are required for this dissertation. This sample is then divided into two sub-sets. One is used for the analysis, from which the model is developed. While the other subset is used for validation purposes, that is to test the model developed. Chapter 1 deals with the causes and symptoms of failure of companies. The various meaning and the extent of failure are also laid down. Chapter 2 looks into the previous studies relating to the various indicators of the financial strength of companies through the univariate and the multivariate techniques of financial ratios analysis. For the univariate ratios analysis, two well-known companies (Marks and Spencer, and The Boots Pic),Chapter 3 relates to the multivariate technique of ratios analysis. Paired-sample (failed and non-failed companies) which is the analysis sample, is required to build up the model based on MDA. An unstandardised canonical discriminant function is then developed. The model developed is later tested with the validation samples. This model will reveal whether Cash flow ratio is a significant predictor of the financial strength of a company by way of whether the cash flow ratio formed part of the model. Chapter 4 is the summary and the conclusion of this dissertation

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