The difference between 2 and 3 lies in the fact that in situation 2 the revenue are managed without taking the relevant expenses into account in situation 3 the relevant expenses are taken into account. The conclusions of their research are: All models produce reasonably well specified test for a random sample of event years; Should the models be used to sample extreme financial performance, all models do not perform good; The most relevant model to use is the Modified Jones Model; and, The selection of the variables used, can be selected incorrectly, resulting in incorrect assumptions and conclusions. Items that additionally have to be taken into account are cash performance - and earnings performance measurements. Based on these conclusions the model that best be used is the Modified Jones Model. As it can be used over a sample of years. But at the same time should the conclusions regarding the wrong assumptions be taken into account, the result of the model will not presented the actual situation. But if this model is combined with the suggested cash - and earnings performance measurements (ratios), this issue would be solved. Literature review on models used to detect financial distress In this paragraph a literature review will be performed on models that have been studied relating to detecting and predicting financial distress or bankruptcy of companies. In general the bankruptcy prediction models are mainly based on financial ratios. As these give the best presentation of current situation of the company. The ratios can be divided into different categories such as return of assets, and liquidity ratio’s financial statement several research studies will be discussed. ratio’s. Hereafter Hopwood, McKeown and Matchler.(1994) A reexamination of auditor versus model accuracy within the context of the going-concern opinion decision.
The difference between 2 and 3 lies in the fact that in situation 2 the revenue are managed without taking the relevant expenses into account in situation 3 the relevant expenses are taken into account. The conclusions of their research are: All models produce reasonably well specified test for a random sample of event years; Should the models be used to sample extreme financial performance, all models do not perform good; The most relevant model to use is the Modified Jones Model; and, The selection of the variables used, can be selected incorrectly, resulting in incorrect assumptions and conclusions. Items that additionally have to be taken into account are cash performance - and earnings performance measurements. Based on these conclusions the model that best be used is the Modified Jones Model. As it can be used over a sample of years. But at the same time should the conclusions regarding the wrong assumptions be taken into account, the result of the model will not presented the actual situation. But if this model is combined with the suggested cash - and earnings performance measurements (ratios), this issue would be solved. Literature review on models used to detect financial distress In this paragraph a literature review will be performed on models that have been studied relating to detecting and predicting financial distress or bankruptcy of companies. In general the bankruptcy prediction models are mainly based on financial ratios. As these give the best presentation of current situation of the company. The ratios can be divided into different categories such as return of assets, liquidity ratio’s and financial statement ratio’s. Hereafter several research studies will be discussed. Hopwood, McKeown and Matchler.(1994) A reexamination of auditor versus model accuracy within the context of the going-concern opinion decision.