Profitability Ratio as a Tool for Bankruptcy Prediction Cover Image

Profitability Ratio as a Tool for Bankruptcy Prediction
Profitability Ratio as a Tool for Bankruptcy Prediction

Author(s): Daniel BRINDESCU OLARIU
Subject(s): Business Economy / Management, Micro-Economics, Policy, planning, forecast and speculation, Accounting - Business Administration
Published by: Fundatia Română pentru Inteligenta Afacerii
Keywords: Corporate finance; Risk; Failure; Financial ratio; Financial analysis; Classification accuracy;

Summary/Abstract: The current study evaluates the potential of the profitability ratio in predicting corporate bankruptcy. The research is focused on Romanian companies, with the targeted event being represented by the manifestation of bankruptcy 2 years after the date of the financial statements of reference. All tests were conducted over 2 paired samples of 1176 Romanian companies. The methodology employed in evaluating the potential of the profitability ratio was based on the Area Under the ROC Curve (0.663) and the general accuracy ensured by the ratio (62.6% out-of-sample accuracy). The results confirm the practical utility of the profitability ratio in the prediction of bankruptcy and thus validate the need for further research focused on developing a methodology of analysis.

  • Issue Year: IV/2016
  • Issue No: 11
  • Page Range: 369-372
  • Page Count: 4
  • Language: English