Abstract
As business expand in modern global economy, cutthroat competition also becomes a reality. It becomes more important for businesses not only to diversify but also to break through with their respective products on different markets through cost cutting techniques and technologies. For survival and carrying on business activities, an organization should have to manage their finances on priority matters that need utmost care and attention. Therefore, company’s financial health and position can be monitored through their financial statement. Broad based expansion in private sector loans during Jul-Feb FY2018 makes financing requirement increased for working capital due to increase in input prices of cotton and coal. Large amount of loans are a burden on textile firms. More use of loans may results into the problem of financial distress that may lead to future bankruptcy.The objective of the study is to analyze the financial distress prediction in textile sector of Pakistan during the period 2012 to 2018. Dependent variable is financial distress prediction and independent variables are WC/TD, RE/TA, EBT/Equity, CF/TD, S/TA, interest rates, exchange rates, cotton prices and export prices. Researcher took secondary data of 120 textile-listed firms for the period of seven years from 2012 to 2018 derived from annual reports.Regression analysis, ANOVA and correlation were performed to check whether independent variables have significant relation with financial distress prediction. Results revealed that WC/TD, interest rates, cotton prices and export prices were found significant.RE/TA, EBT/Equity, CF/TD, and S/TA and exchanges rates have negative and insignificant relation with financial distress prediction. Keywords: Financial distress, bankruptcy prediction, Fulmer model, Pakistan Stock Exchange, Financial ratios, Macroeconomic indicators DOI : 10.7176/EJBM/11-19-01 Publication date :July 31 st 2019
Highlights
1 As business expand in modern global economy, cutthroat competition becomes a reality
It becomes more important for businesses to diversify and to break through with their respective products on different markets through cost cutting techniques and technologies
Financial distress comprises of numerous situations where a company has to face some form of financial difficulty
Summary
According to Altman (1993) “the realized rate of return on invested capital, with allowances for risk consideration, is significantly and continually lower than prevailing rates of similar investments.” In general, this is an economic sense and has no relation with the lack of continuity of firm. In Textile Composite there are fifty two companies listed with approximately total paid up capital and market capitalization of PKR 14.721 Billion PKR 217.806 Billion(Government of Pakistan, 2017-2018). 1.1 Problem Statement 2 Like other countries of the world, Pakistan lost their major export share in international market. Comparing to those countries, economy of Pakistan rely more on textile industry that makes this situation more pivotal and have a decisive impact on economy. During July-February fiscal year, 2018 there was an immense increase in private sector loans especially in manufacturing sector that received a share of almost 59.8 percent or (PKR 206.3 Billion).Textile share was 35.8 percent (PKR 123.5 Billion), during fiscal year 2017 working capital financing requirements increased due to an increase in input prices of cotton and coal (Government of Pakistan, 2017-2018).
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