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

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.