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The Implementation of Fuzzy Logic to Predict the Bankruptcy of Company in Indonesia

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  • EDNAWATI RAINARLI

    (University Of Computer Indonesia, Indonesia)

  • AURELIUS AARON

    (University Of Computer Indonesia, Indonesia)

Abstract

Prediction of bankruptcy of company is generally used to determine the risk of harm caused by inability of debtors in basic payment of its debt, interest rate, or both. In this research, it will be built on fuzzy model to predict bankruptcy of the company based on company’s characteristics in Indonesia. The data used would be obtained from the financial reports of public companies taken from the Indonesian Stock Exchange to do a correlation test. After correlation test would be conducted, it would be found that the financial ratios influence one year prior of bankruptcy and two year prior of bankruptcy. That ratios are used as parameter input of fuzzy model. The output of defuzzification of fuzzy model is a prediction of bankruptcy for each company. After conducted testing, we saw that fuzzy model can predict well the bankruptcy of 65 public companies to the year before bankruptcy and two years before bankruptcy, with the accuracy for each being 81,54% and 83,85%. Based on these results, fuzzy logic can be used as alternative to predict events in the future with a high degree of uncertainty especially for characteristic of the companies’ conditions in Indonesia.

Suggested Citation

  • Ednawati Rainarli & Aurelius Aaron, 2015. "The Implementation of Fuzzy Logic to Predict the Bankruptcy of Company in Indonesia," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 1(4), pages 147-154.
    • Handle: RePEc:apa:ijbaas:2015:p:147-154
    DOI: 10.20469/ijbas.1.10003-4
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    References listed on IDEAS

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    1. Korol, Tomasz, 2013. "Early warning models against bankruptcy risk for Central European and Latin American enterprises," Economic Modelling, Elsevier, vol. 31(C), pages 22-30.
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