Prediction of business failure: A funds flow approach

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The purpose of this paper is to assess the usefulness of financial ratios derived from working capital-based funds flow information to predict the failure of US industrial firms. Unlike cash-based funds flow ratios, used in the previous papers, capital-based funds ratios are less volatile, therefore they are expected to be better predictors of business failure. Moreover, the paper utilizes a more general definition of business failure than the legal definition. The analysis is carried out using a stepwise logit procedure. The results indicate that working capital-based funds flow measures are superior to cash-based funds flow measures in business failure prediction models.

Original languageEnglish (US)
Pages (from-to)64-71
Number of pages8
JournalManagerial Finance
Issue number3
StatePublished - 1997

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting (miscellaneous)
  • Finance


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