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Volume :13 Issue : 52 1987      Add To Cart                                                                    Download

THE USE OF ACCOUNTING RATIOS IN PREDICTING FINANCIAL CRISES A Suggested Model For Kuwait Stock Exchange

Auther : By: Dr. Hisham A. Hasabou Fadel

 

            The main objective of this paper is to develop an accounting model that utilizes accounting rations to assess the financial strength of the listed Kuwaiti Corporations of Kuwait Stock Exchange (KSE).  Fifty rations have been selected according to a defined theoretical framework.  The rations are determined by reviewing both literature and Kuwait environment.

           Balance sheets and income statements of all the listed corporations of KSE except banks are collected, coded and electronically processed for the period 1973-1982 inclusive.  Uni-variate and multi-variate statistical techniques are employed to develop a predictive model which has a discriminant power between corporation, with or without financial deficiencies.  The discriminant power of the suggested statistical model is estimated to be 83%.  Verification of such a model on previous year data has increased its predictive power to 88%.

           The empirical model gives a scientific and practical tool to monitor the financial position of Kuwaiti corporations. Therefore, it may be used to predict financial crisis.  The model is advocated for making international and local investment decisions in stocks.

           Further research is needed to update this model and to expand its application to cover different markets and other companies.

 

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