Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Financial Analysis and Forecasting of Business Failure Applied to Manufacturing Companies

Author(s): Irene Buele, Adriana Tigsi, Santiago Solano

The main function of companies is to generate wealth both for a country, through the generation of employment, and for consumers, through the availability of quality goods and services that satisfy their tastes and preferences. In this sense, the importance of the manufacturing sector lies in the fact that it is a sector that transforms raw materials into value-added consumer products, generates employment due to its high concentration of labor and exploitation of resources, and is one of the main supports for investment and development of other sectors of the economy. Predicting possible bankruptcies for companies is a topic of interest within financial analysis. Its main objective is to set in action certain actions that will avoid the probability of finding oneself in a critical scenario. Predicting the financial sustainability of a company in the short or long term is not an easy task; it is necessary to consider multiple variables, from the structure, the sector in which it operates, the economic activity to which it is dedicated and even the dynamics of a market. One of the methods developed for predictive studies is the Altman Z-Score Model. This method seeks to identify, through the calculation of various financial ratios, the financial health of a company. This research was based on a financial analysis and bankruptcy forecast of anonymous companies in the manufacturing sector in the province of Azuay in Ecuador. It was shown that these companies maintain a good level of assets, sales and profits. However, eight economic activities at risk were identified, where the Wood Products Manufacturing activity is located as one of the most susceptible to bankruptcy. Therefore, these eight activities should implement corrective actions to reduce costs.

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