Business Failure Risk Analysis using Financial Ratios

Abstract

Financial ratios have long been considered as good predictors of business failure and are proved to accurately discriminate between failed and non-failed companies several years prior to failure. The purpose of this paper is to investigate the predictive power of financial ratios for a sample of Romanian listed companies. The results of the t-test showed the existence of some significant differences between two groups of companies, performing and non-performing companies, especially with regard to profitability, financial position and leverage both in 2010 and 2009.