Building a Scoring Model for Bankruptcy Risk Prediction on Multiple Discriminant Analysis
AbstractThe 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 InfoArticle 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)
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Web page: http://www.univ-ovidius.ro/facultatea-de-stiinte-economice
More information through EDIRC
discriminant analysis; bankruptcy; prediction; financial ratios; score;
Find related papers by JEL classification:
- C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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