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Building a Scoring Model for Bankruptcy Risk Prediction on Multiple Discriminant Analysis

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  • Vintila Georgeta

    ()
    (Academy of Economic Studies, Bucharest)

  • Toroapa Maria Georgia

    ()
    (Academy of Economic Studies, Bucharest)

Abstract

The purpose of this paper is to use discriminant analysis to substantiate a score function effective in bankruptcy risk prediction of enterprises on Romanian economy example. For achieving discrimination between bankrupt and non-bankrupt in the scoring model we used relevant financial ratios related to activity, liquidity, leverage and profitability. The weighting coefficients established between independent variables and the objective function-score, are determined by using optimization, through a solver in Excel, with four financial ratios as input:return on revenue, cash-flow to debt ratio, debt to assets ratio, total debt payment period. Based on financial information submitted for 2009, the analysis was conducted on a sample of companies listed on the Bucharest Stock Exchang and achieved a success rate for the scoring model. The results in this article can be used to observe the evolution of a Romanian company over time, to make an idea about curent and future financial situation, and take, if necessary, corrective measures.

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Bibliographic Info

Article provided by Ovidius University of Constantza, Faculty of Economic Sciences in its journal Ovidius University Annals, Economic Sciences Series.

Volume (Year): XI (2011)
Issue (Month): 1 (May)
Pages: 2283-2288

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Handle: RePEc:ovi:oviste:v:11:y:2011:i:1:p:2283-2288

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Web page: http://www.univ-ovidius.ro/facultatea-de-stiinte-economice
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Keywords: discriminant analysis; bankruptcy; prediction; financial ratios; score;

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