The Impact of Financial Statement in Predicting Onset of Bankruptcy in UAE Companies: (A case between 2006 to 2014)

Name

Affiliation Background Abstract of the Topic

Corporate bankruptcy has been an issues that has got common occurrence back into the 21st century. Of late, this has noted a multiplier effect in the financial global market; companies are running out of funds the cost or operation as well as debt financing. This study will examine various financial ratios using financial reports of companies and firms of UAE bankrupt and active companies for the period 2006 to 2014. This is all with the aim of denoting if the ratios are able to or are reliable in prediction of bankruptcy. The use of cross-sectional analysis will be employed in the study to compare financial rations from two companies to explain the relationship between business failure and explanatory variables that comes with bankruptcy. Statistical model will also be employed to determine the predictive power of financial ratios. It is hypothesized that the empirical results should indicate that the ratios of total sale less total assets and credit sales less total sales are not related to bankruptcy. The four ratios that will be tested against bankruptcy are long term debt-total equity, operating profit turnover, net profit assets and quick ratios.

Outline

The research project will be divided into five main parts or sections/chapters. The first section of the paper will compose of the introduction of the subject matter; here all the explanation about the purpose of study, significance of study, the study objective, the limitation of study, delimitation of study and the hypothesis will be noted. The second section or chapter will be the literature review to the subject matter. Previous related study based to financial ratio analysis and bankruptcy will be used in the study in great understanding in order to test the research questions and hypothesis. In addition, the review of literature section will also compared such incidence of the use of financial rations in the prediction and its reliability in other nations. The third chapter will be the research methodology; the choice of the methodology will be evaluated. In the fourth chapter, the empirical data and information will be analyzed hence the section will be the results and analysis section. The last chapter will be a summary of the findings and some calculations will be drawn to indicate the validity of the data offered in the results section of the paper. The fifth chapter will also offer suggestions for future research. Recommendation of will also be offered in the last chapter.

References

Beaver, W. H., McNichols, M. F., & Rhie, J. W. (2005). Have financial statements become less informative? Evidence from the ability of financial ratios to predict bankruptcy. Review of Accounting Studies, 10(1), 93-122.

Lee, T. S. (2004, August). Incorporating Financial Ratios and Intellectual Capital in Bankruptcy Predictions. In Proceedings of the National Taiwan University International Conference in Finance, Taiwan, December (pp. 20-21).

Martin, A., Gayathri, V., Saranya, G., Gayathri, P., & Venkatesan, P. (2011). A hybrid model for bankruptcy prediction using genetic algorithm, fuzzy c-means and MARS. arXiv preprint arXiv:1103.2110.

VenkataRamana, N., Azash, S. M., & Ramakrishnaiah, K. (2011). Financial Performance and Predicting the Risk of Bankruptcy: A Case of Selected Cement Companies in India.

Wang, Y., & Campbell, M. (2010). Financial ratios and the prediction of bankruptcy: the ohlson model applied to Chinese publicly traded companies.the Journal of organizational leadership & business, 1-15.