The Diagnosis of Bankruptcy Risk Using Score Function

by Lidia Mandru of the George Baritiu University, Brasov, Romania,
Adrian Khashman of the Near East University, Nicosia, Cyprus,
Claudia Carstea of the George Baritiu University, Brasov, Romania,
Nicoleta David of the George Baritiu University, Brasov, Romania, and
Lucian Patrascu of the George Baritiu University, Brasov, Romania

February 2010

Abstract: The current economic crisis has made the business environment to be qualified as difficult or even critical, bankruptcy risk becoming a permanent reality for many companies. Discriminant analysis can be used to assay companies and particularly to evaluate their bankruptcy risk. Score functions are based on discriminant analysis and they are formed of a linear combination with a limited number of financial ratios; they are used in financial analysis but not only to identify the companies' present situation but also to assay their future. In this paper we shall use score functions to determine the bankruptcy probability for private companies.

Keywords: Z-Score, Bankruptcy Risk, Discriminant Analysis, Financial Ratios

Published in: AIKED'10: "Proceedings of the 9th WSEAS international conference on Artificial intelligence, knowledge engineering and data bases"

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