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Role of Failure Prediction models.
Member rating: No Rating | Words: | Submitted: Mon Jun 19 2006
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Role of Failure Prediction models It is very useful for us to be able to predict the future of specific companies using information taken from financial statements. Total failure of a company (i.e. bankruptcy) can have a drastic effect on shareholders who will face a loss of income. It will also affect lenders and suppliers, whom the company may not be able to afford to make timely payments to, and employees and managers who may be made redundant. It has been suggested (Hambrick, D. and D'Aveni, R., 1988) that indicators used to predict company failure can exist as much as ten years prior to the actual failure. This means there may be time, through re-structuring and organisation, to attempt to rescue the company if this is a correct prediction. It is not always possible to predict corporate failure as although failing companies often show signs of financial distress, the company...
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