A Study of Financial Distress based on MDA

Amalendu Bhunia, Ruchira Sarkar

Abstract


The present study is crucial importance to build up a model to develop the predictive abilities for company failures in a later time frame with different financial, business and operating conditions in the Indian context. A total of sixty-four private sector pharmaceutical companies were analyzed with sixteen financial ratios using multiple discriminant analysis. A strong discriminant function was constructed with seven ratios found to be significant in discriminating power and the classification results showed high predictive accuracy rates of between 88% and 94% for each of the five years prior to actual failure. This study also indicated that even with more advanced statistical tools more popularly used recently, MDA is still a very reliable and potent statistical tool.


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DOI: http://dx.doi.org/10.5296/jmr.v3i2.549

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