An analysis of useful financial ratios in predicting failure among the financially distressed companies in Malaysia

The main objective ofthis study is to analyse the usefulness of financial ratios in predicting corporate failure. A model known as the "Z-score" model which combined five financial ratios into a single predictive equation was evaluated in order to determine its applicability as an indicator in predicting failure. The sample consisted of financially distressed companies listed in the KLSE and were analysed for a period of nine years. While financial ratios have been widely used to measure financial health of a company, the applicability of this model that comprised of five financial ratios in predicting failure among the financially distressed companies in Malaysia, is still questionable and needs further research to be conducted. However, from the study, it was found that the model can be used as an indicator in predicting impending failure as it did gives an early warning signal should substantial changes take place in the financial health of the distress