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

Abstract

The Use of Accounting and Financial Ratios to Predict Failure: The Case of Jordan

Author(s): Talal Al-Kassar, Mohammed Saadat, Tankiso Moloi, Ali Masadeh, Ammar Al-Hattab, Talal Jrairah

The study aimed to use the financial performance of Jordanian companies in order to predict financial failure. To achieve this, financial ratios were applied. Data was collected from selected companies through an analysis of relevant documents as well as through interviews with senior management in industrial companies operating in Jordan. The findings indicate that there are essentially four ratios that could explain and predict financial performance of a company in the Jordanian setting; these are a ratio of current assets to total assets, a ratio of debtors to sales, a ratio of net profit before interest and tax to current liabilities, and a ratio of the market value of capital-to-book value of the total debt, the latter of which appears to be the most important ratio.