Analysis of Financial Ratios as Predictors of Corporate Bankruptcy in India

Authors

Dr. Arun Kumar Jain

Abstract

This paper explores the predictive power of financial ratios in forecasting corporate bankruptcy within the Indian context. It identifies key financial ratios—debt-to-equity, current ratio, interest coverage ratio, and net profit margin—as effective indicators of financial distress. Drawing on empirical evidence from prominent bankruptcies such as Kingfisher Airlines, Bhushan Steel, and Lanco Infratech, the study highlights the financial indicators that signal early warning signs of insolvency, often several years prior to formal bankruptcy proceedings. Additionally, the paper discusses the role of macroeconomic factors, regulatory challenges, and the inadequacies in the Indian corporate governance system, which exacerbate the risk of financial failure. Through a combination of case studies, quantitative data, and a review of existing predictive models such as the Altman Z-score, this research presents a comprehensive view of how financial ratios can be leveraged as part of a proactive strategy for corporate risk management. The study emphasizes the need for an integrated approach combining financial ratio analysis with real-time data analytics and regulatory reforms to improve the early detection of potential bankruptcies. Ultimately, the paper advocates for a systemic shift towards incorporating financial ratios as standard tools for risk assessment in India’s corporate landscape.

Keywords

Analysis of Financial Ratios as Predictors of Corporate Bankruptcy in India. Dr. Arun Kumar Jain. 2018. IJIRCT, Volume 4, Issue 2. Pages 1-9. https://www.ijirct.org/viewPaper.php?paperId=2505019