Prediction of Financial Distress and Insolvency for Industrial Firm (Case Study)

Dr. Ahmed Alrawi


This paper aims to redress some of the incorrect decisions practiced by management in ''Al-Hayat Firm for Manufacturing Durable Products'', for the period (2013-2015) bringing the firm to the edge of collapse.  In this paper, the focus lies on the benefits of the financial analysis in the economy to help the decision makers become more aware and how to gain a competitive advantage for their firms. The aim of this paper also is to shed light on the negligence practices in some firms and the associated problems of a financial analysis system implementation.

The evidences suggest that the firm suffered a heavy burden of debts and going bankrupt in the near future. Financial ratio's analysis has been used to assess profitability and risk of the concerning firm. In liquidity ratios the percentage of the working capital is less than (1), indicate the increase in the liabilities over the assists. In the leverage ratios the total liabilities to total assets was increased from (38.69%) to (53.73%). In the activity ratios the inventory turnover decreased by (1.10 times) through the given period. In the profitability ratios the net profit to total sales became negative amount to (-80.01%) from (-33.61%) for the same period. Also, the net profit to total assets percentage declining to (-9.29%, -2.10%) in the given period, and the stock book value declined from (85$) to (57$), through the given period.

The researcher used one of the different measure used to predict the firm's insolvency and probably its bankrupt (i.e. Altman, Z-score analysis). The study result indicated the weakness of ''Al-Hayat Firm for Manufacturing Durable Products'' for the period (2013-2015). In calculating the ''Altman, Z-score'' the result suggest that (Z) value for the given period was less than 1.81, (Z-score <1.8).

The main features give a gloomy picture and inefficiency of firm's financial position.


Insolvency, Financial analysis, Industrial firm, financial reporting, Working capital

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