Financial distress prediction for rice mills in Khon Kaen and Nakornratchasima province (Thai)

Abstract

The objectives of this research were to study the nature of the operation of rice mills, to gather financial data, to analyze financial ratios and to create a model by using the logistic regression analysis method for predicting the failure of rice mills. This will be useful for the owners to improve the business operations effectively and to reduce failure opportunity of rice mills in Khon Kaen and Nakornratchasima province. Primary data were gathered from financial reports of juristic persons that registered as limited partnerships and limited companies which sent their financial reports to the Department of Business Development between 1998 and 2005. There were 2 different sample groups: the first group was the rice mills existing until 2005 and the second group was the rice mills closing down which had 3 members recorded by the Department of Business Development as closing, desolating and account clearing. The financial data was used to calculate financial ratios, which helped create the financial distress prediction model. The results conclude that çReturn on Equity Ratioé and çInventory to Current Assets Ratioé are the most suitable financial ratios to make the model for predicting possibility that rice mills will go out of business. This model can predict with 98.2% accuracy for the 2003 information