The financial performance of small and medium sized companies: A model based on accountancy data is developed to predict the financial performance of small and medium sized companies.

摘要

This study is concerned with developing a model toudidentify small-medium U.K. companies at risk of financialudfailure up to five years in advance.udThe importance of small companies in an economy, theudimpact of their failures, and the lack of failureudresearch with respect to . this population, providedudjustification for this study.udThe research was undertaken in two stages. The firstudstage included a detailed description and discussion ofudthe nature and role of small business in the UK economy,udheir relevance, problems and Government involvement inudthis sector, together with literature review andudassessment of past research relevant to this study.udThe second stage was involved with construction ofudthe models using multiple discriminant analysis, appliedudto published accountancy data for two groups of failedudand nonfailed companies. The later stage was performed inudthree parts : (1) evaluating five discriminant models forudeach of five years prior to failure; (2) testing theudperformance of each of the .five models over time on dataudnot used . in their construction; (3) testing theuddiscriminant models on a validation sample. The purposeudwas to establish the "best" discriminant model. "Best"udwas determined according to classification ability of theudmodel and interpretation of variables.udFinally a model comprising seven financial ratiosudmeasuring four aspects of a company's financial profile,udsuch as profitability, gearing, capital turnover andudliquidity was chosen. The model has shown to be a validudtool for predicting companies' health up to five years inudadvance.