Do Corporate Failure Prediction Models Work?

During periods of recession or rapid expansion the need to monitor closely the performance of a business is essential and there are financial techniques available to do this. One such method, Multi Discriminant Analysis, has received considerable attention in accounting circles where opinions differ regarding its success. In this analysis eight companies from the leisure sector have been selected specifically to demonstrate varying levels of success. Financial data taken from the published accounts are then analysed using two widely recognised models. This preliminary research provides evidence that this technique has the potential for predicting failure in the leisure sector. Further research is now required to determine the effective lead time for such predictions and eventually to provide a model specifically for the service industries.