Predicting corporate bankruptcy using multivariant discriminate analysis (MDA), logistic regression and operating cash flows (OCF) ratio analysis: A Cash Flow-Based Approach

Abstract

In this paper, we will discuss current solvency evaluation methods, explore their inherent weaknesses and propose a cash flow-based alternative that may be more effective in identifying candidates that are susceptible to financial failure. We believe this research will benefit corporate business managers of both public and private firms in helping them to identify and to take constructive action to correct potentially crippling situations. We also believe it will be of value to equity and debt investors, by providing them with more timely and accurate analysis for investment decisions. Lastly, it should be of value to auditors in assessing a firm ability to continue as a 'going concern' and issuing opinions.