Beyond Financial Ratios : A Novel Approach to Bankruptcy Predictions for Indian Firms

The purpose of this study was to develop a new bankruptcy prediction framework that considers a wider range of factors beyond traditional financial ratios and improve the efficiency and accuracy of bankruptcy prediction models in the Indian ecosystem. The financial statements of three Indian firms, DHFL, Reliance Communication, and Jet Airways, from 2011 to 2021 were analyzed. A combination of liquidity ratios, activity ratios, and leverage ratios were used to analyze the relationship between profitability, capital structure, and assets to predict bankruptcy. The study proposed a new bankruptcy prediction model that outperforms traditional financial ratio-based models in predicting bankruptcy risk for Indian firms. The model considers a wider range of factors beyond traditional financial ratios, including macroeconomic conditions and fraudulent activities. The proposed model provides a more comprehensive analysis of bankruptcy risk, enabling businesses and policymakers to better identify and manage bankruptcy risk and ensure financial stability in the Indian ecosystem. This study takes a novel approach by adopting multiple models to establish a bankruptcy prediction framework that can be used across the Indian ecosystem. This comprehensive approach to bankruptcy prediction was essential given the increasing complexity of the business environment and the need for more sophisticated methods for assessing bankruptcy risk