A friend has mentioned that she has read somewhere that the following variables can be used to predict bankruptcy: (a) the company debt ratio; (b) the interest coverage; (c) the amount of cash relative to sales or assets; (d) the return on assets; (e) the market-to-book ratio; (f) the recent return on the stock; (g) the volatility of the stock returns. The problem is that she can’t remember whether a high value of each variable implies a high or a low probability of bankruptcy. Can you help her out?

a.The company debt ratio is nothing but a ration of total debts to total assets.Higher the ratio the…

Answered: (a) the company debt ratio; (b) the…

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter5: Corporate Ethical Governance & Accountabililty

Section: Chapter Questions

Problem 20.1EC

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A friend has mentioned that she has read somewhere that the following variables can be used to predict bankruptcy: (a) the company debt ratio; (b) the interest coverage; (c) the amount of cash relative to sales or assets; (d) the return on assets; (e) the market-to-book ratio; (f) the recent return on the stock; (g) the volatility of the stock returns. The problem is that she can’t remember whether a high value of each variable implies a high or a low probability of bankruptcy. Can you help her out?

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