DETERMINANTS OF FINANCIAL SOUNDNESS IN INDIAN COMPANIES
Dr. Chandrashekhar R
A number of researchers have undertaken empirical studies in predicting business failure. Using discriminant analysis Altman developed a z-score model long ago. Several other researchers in the developed countries developed different models to predict business failure. Most of the empirical studies reveals that z-score become best predictor of business failure. Z-score model uses financial information to predict business performance. The analysis of variance of 28 ratios reveal significant difference between different companies for 19 ratios. The discriminant coefficient of inventory turnover ratio, sales to total assets ratio, current ratio and total debt to total assets ratio are higher and emerged as discriminators between companies. These four ratios determine the financial efficiency of the companies and included in the z-score model.
KEY WORDS: Ratio, z-Score, Discriminant Coefficient, Financial Efficiency.