ABSTRACT
A innovation in modem corporate finance is the development of models to predict bankruptcy. Inputting Texas International, Inc. (TEI) data into the early warning model provides a quantitative assessment across time of the company’s financial health. Many financial and reserve ratios were compared in a search for the optimal set of bankruptcy predictors. TEI’s bankruptcy risk jumped into the danger zone in 1983. Yet much of the increased risk came from the ratio of long-term debt to total assets. Starting in 1983, this ratio became dangerously high. A second episode of high bankruptcy risk began in 1985 as a result of high debt and an excessive exploration budget. Investors and company managers are encouraged to fall back on the fundamental analysis that lies at the heart of any early warning model.
