Use of Financial Statements for Predicting the Corporate Success or Failure

By

ACKNOWLEDGEMENT

I would like to thank my supervisor for supporting me throughout my project and giving his valuable suggestions. Finally thanks to all my friends and family for their utmost support and inspiration.

ABSTRACT

The research study has highlighted the use of financial statements for predicting future success or failure of the corporations. The research study will discuss different aspects of the financial statements and underline the use of the financial ratios that are used for examining the financial performance of the corporations. The financial ratios are greatly used by the accountants and managers in order to check the performance of the companies. On the basis of these ratios, future investment activities are also planned within the corporations. The Z-sore methodology will be used in the research study in order to predict the future performance of the corporation. Five different ratios that are included in the Z-Score methodology are return on total assets, sales to total assets, equity to debt, working capital to total assets and the retained earning to total assets. For these ratios, total assets, total liabilities, sales, working capital, market value equity and retained earnings are used. By using these ratios, Z-score is calculated on the basis of which the success or failure of the corporations is predicted. Two groups of corporations will be analysed in the research study that are the bankrupt corporations and the non bankrupt corporations.

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

CHAPTER 1: INTRODUCTION1

Background of the research study1

Problem Statement2

Aims and objectives of the Research study3

Significance of the research study3

Rationale of the research study5

Research Questions6

CHAPTER 2: LITERATURE REVIEW7

Theoretical Framework7

Financial Statement8

Structure of the Financial Statement10

Advantages of the Financial Statement10

Significance of financial statement11

Benefit from an Understanding of Financial Statement to Business Manager14

Income statement and its application for predicting the current or future position14

Prediction of Corporate Success or Failure15

CHAPTER 3: METHODOLOGY17

Rationale for a Qualitative Study17

Rationale for a Quantitative Study18

Z-Score Methodology19

Strength and weakness of the mixed research20

Strengths20

Weaknesses20

Research Design21

Literature Search22

Instrument for data collection22

Data analysis22

Reliability/Dependability23

Validity23

Ethical Considerations24

CHAPTER 4: ANTICIPATED RESULTS25

CHAPTER 5: CONCLUSION26

BIBLIOGRAPHY27

CHAPTER 1: INTRODUCTION

Background of the research study

The research study is primarily focused on the use of the financial statements to predict the success or failure of the corporation in the future. The research study will highlight various aspects of the financial statements. The financial statements are used for different purposes that include various ratios. These ratios are usually used to analyse the performance of the companies. The financial statements provide deep insights about the financial performance of the corporations as to how they are working. The research study will analyse the financial statements that take into account different financial ratios on the basis of which the corporations assess their past performance. It also allows the corporations to assess their present position and how much they have to achieve in the future to generate huge profits. The use of financial statements is imperative for the corporations.

The financial statements are one of the most reliable sources for the corporations on the basis of which they can greatly predict ...