Lam, Chiu-Shing; (1994) Predicting company failure in the UK housebuilding industry. Masters thesis (M.Sc), UCL (University College London).

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Abstract

This report describes the development of a predicting model for the identification of UK housebuilding companies in danger of failure. The model is developed using a combination of two techniques, financial ratio analysis and a statistical technique known as 'multiple discriminant analysis'. This is a fairly new area of research in the UK housebuilding industry and is still open to further development. This report is an attempt to validate the technique and describe its capabilities. The predictive model is made up of four variables, measuring four different aspects of a company's financial structure (i.e financial risk, profit margin, efficiency and working capital position), and it provides good discrimination between 'solvent' and 'failed' companies. The results from the model support conclusions that this type of statistical model can be used as a classificatory tool, and it is possible to predict, with some confidence, who could be the next to fail.

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