Financial Ratios, Size, Industry and Interest Rate Issues in Company Failure: An Extended Multidimensional Scaling Analysis

Three-way multidimensional scaling methods are used to study the differences between

UK failed and continuing companies from 1993 to 2001. The technique allows for

visual representations of the results, so that qualitative information can be brought to

bear when judging the health of a company. It is shown that it is important to take into

account company size and area of activity. Results also suggest that the ratio structure

of the companies varies between years in response to changes in the interest rates,

suggesting that the frontier between failing and continuing firms moves in response to

the economic cycle.