Financial Ratio Analysis as a Device for Predicting Financial Distress (2024)

See all articles by Syaiful Baharee Jaafar

Syaiful Baharee Jaafar

Politeknik Tuanku Sultanah Bahiyah

Asmidar Salleh

Politeknik Tuanku Sultanah Bahiyah

Hasmawazi Hamzah

Politeknik Tuanku Sultanah Bahiyah

Abstract

[Shareholder invested in the company with the goal of enhancing wealth through a better dividend. Therefore, company performance is a priority among shareholder for decision making either to remaining investment or withdrawal. Better performance is linked to better financial management through which all liabilities are able to pay. It is very important for companies to go through financial ratio analysis to predict financial distress in order to avoid the company's bankruptcy. Early action may be taken if the financial ratio analysis indicates the company is facing a financial crisis. This prevents any crisis between company and shareholder. A company that is able to determine the company's capacity to meet the obligation using a liquidity ratio. Moreover, the leverage ratio measures the efficiency of companies in utilizing their resources to generate sales. The performance was monitored to align the objectives of the company and the shareholders in a similar way, so the profitability ratio is very useful as indicated

Jaafar, Syaiful Baharee and Salleh, Asmidar and Hamzah, Hasmawazi, Financial Ratio Analysis as a Device for Predicting Financial Distress (April 2, 2021). Available at SSRN: https://ssrn.com/abstract=3818116 or http://dx.doi.org/10.2139/ssrn.3818116