Working capital

Financial system

Probability of default

Communication

Actuarial science

Chromatography

Bankruptcy

Creditor

Accounting

Auditor's report

Business

Corporate governance

Psychology

Bankruptcy prediction

Audit

Psychotherapist

Debt

Financial distress

Distress

Cash flow

Chemistry

Sample (material)

Finance

Going concern

Credit risk

Affect (linguistics)

Shareholder

Current liability

Journal of risk and financial management

Financial performance of firms is very important to bankers, shareholders, potential investors, and creditors. The inability of firms to meet their liabilities will affect all its stakeholders and will result in negative consequences in the wider economy. The objective of the study is to explore the applicability of a distress prediction model which uses the F-Score and its components to identify firms which are at high risk of going into default. The study incorporates a prediction model and vast literature to address the research questions. The sample of the study is collected from publicly listed firms of the United States. In total, 81 financially distressed firms wereextracted from the UCLA-LoPucki Bankruptcy Research Database during 2009–2017. This study found that the relationship of the F-Score and probability of firms going into financial distress is significant. This study also demonstrated that firms which are at risk of distress tend to record a negative cash flow from operations (CFO) and showed a greater decline in return on assets (ROA) in the year prior to default. This study extends the existing literature by supporting a model which has not been widely used in the area of financial distress predictions.

Predicting Firms’ Financial Distress: An Empirical Analysis Using the F-Score Model