Financial Distress and Ratios Informative Capability: Empirical Evidence from the Italian Food & Beverage Industry

16 Pages Posted: 18 Sep 2007 Last revised: 10 Oct 2010

See all articles by Emiliano Cantoni

Emiliano Cantoni

University of Bologna - Department of Management

Riccardo Silvi

University of Bologna - Department of Management

Date Written: October 8, 2010

Abstract

This paper analyses and compares the informative capability of diffused financial ratios to point out future financial distress. A panel of 76 Italian food and beverage firms (6 bankrupt and 70 non bankrupt, from 1997 to 2001) was utilized and a set of 11 relevant financial ratios was investigated. Two fundamental dimensions are considered: the profitability one (e.g. earnings, cash flows and growth), and the financial one (e.g. capital structure, debt level, liquidity). The analysis was carried out using a classification approach based on benchmarking and implementing ROC curves method.

The evidence shows that there are not significant differences in terms of informative capability between a linear combination of ratios concerning financial dimension, and a linear combination of ratios concerning growth, profitability and cash flows.

Keywords: Financial ratios, Ratios informative capability, Financial distress, ROC curves, Bankruptcy

JEL Classification: G32, G33, L66, M21, M41

Suggested Citation

Cantoni, Emiliano and Silvi, Riccardo, Financial Distress and Ratios Informative Capability: Empirical Evidence from the Italian Food & Beverage Industry (October 8, 2010). Available at SSRN: https://ssrn.com/abstract=1012651 or http://dx.doi.org/10.2139/ssrn.1012651

Emiliano Cantoni (Contact Author)

University of Bologna - Department of Management ( email )

Piazza Scaravilli 1
Bologna, Bologna 40126
Italy
+390543374640 (Phone)

Riccardo Silvi

University of Bologna - Department of Management ( email )

P.le della Vittoria, 15
Forli', Bologna 47100
Italy

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