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

Georgeta Vintila and Toroapa Maria Georgia ()
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Toroapa Maria Georgia: Academy of Economic Studies, Bucharest

Ovidius University Annals, Economic Sciences Series, 2011, vol. XI, issue 1, 2283-2288

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.

Keywords: discriminant analysis; bankruptcy; prediction; financial ratios; score (search for similar items in EconPapers)
JEL-codes: C38 C52 G17 G32 G33 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:ovi:oviste:v:11:y:2011:i:1:p:2283-2288

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