Financial Failure Prediction Using Financial Ratios: An Empirical Application on the Saudi Stock Exchange

Abstract

The objective of this research is to predict financial failure of few selected companies using financial ratios. In addition, the goal of this review is to look at the segregating power of monetary crisis utilizing the factors of the Altman's Z-score display and build up a reasonable model for Saudi Arabia, which could give detect ahead of time about the budgetary pain of companies. To build up the model the review has classified the chosen factors from year 2013 to 2016 two bad performing and two good performing companies. Multivariate Discriminant Analysis (MDA) has been utilized as the logical strategy and synchronous estimation technique used to enter the factors in the research. The results show that all the company's fall within the gray are, which indicates a weakness in performance and inability to make satisfactory profits for shareholders. Companies results reveal that most of them suffer from sever stagnation and that most of them do not distribute any profits at all or distribute very little profits. The two good performing companies continue to remain in the market while the two bad performers have quit the market.

Keywords: Financial ratios, Saudi Arabia, Stock Market

DOI: 10.7176/RJFA/10-9-07

Publication date:May 31^st 2019