Conference Paper.pptx

AICTE SPONSORED
14TH INTERNATIONAL CONFRENCE
ON
“Industry 4.O OPTIMISING OPERATIONS AND SHAPING THE FUTURE OF BUSINESS”
CO-HOSTED BY ASSOCIATION OF INTERNATIONAL BUSINESS & PROFESSIONAL MANAGEMENT,
INDONESIA
A STUDY ON DISCRIMINANT ANALYSIS OF CORPORATE
BANKCRUPTCY.
Name of Authors
Dr.Nitin Tanted
Affiliations of
Authors
Prestige Institute of
Management and
Research,Indore
11th -12th Feb.14th INTERNATIONAL CONFERENCE ON INDUSTRY 4.0 : OPTIMISING OPERATIONS AND SHAPING THE FUTURE OF BUSINESS

KEYWORDS
• BANKCRUPTCY
• DISCRIMINANT ANALYSIS
• Financial Ratio’s
• Investment Decision Making.
• Small Cap Companies.

VARIABLES OF STUDY
Ratios used in research are-
Price-to-Earnings-.
P/E = price per share
EPS
Price-to-Book Ratio-
P/B= market price per share
Book value per share
Current Ratio-
Current ratio = current assets
current liabilities
Debt to Equity-
D/E= total debt
shareholder’s equity

Ratios
◦ Dividend Yield-
◦ D/Y= annual dividend per share
◦ price per share
◦
◦ Inventory turnover ratio-
◦ Inventory turnover ratio= Cost of Goods Sold
◦ Average Inventory
◦ Net Profit Ratio-
◦ Net profit ratio = net income
net sales
◦ Earnings Per Share-
◦ Earnings per share = profit − preferred dividends
weighted average common shares

RESEARCH GAP FULFILED BY THE
STUDY
Very few researches have been conducted on a study on discriminant analysis of
corporate bankruptcy and many changes have been made in the past few years
because of which study is required for better insights in this area.
The Financial Scenario is dynamic in nature so this study is always relevant.
The purpose of this study is to measure the quality of ratio analysis as an analytical
technique.

OBJECTIVES OF THE STUDY
Objective : To identify the financial ratios impacting bankruptcy
using discriminant analysis.
Nature of Study :The research is empirical in nature and is
undertaken to Identify the Impact of Ratios on Bankruptcy using
Discriminant Analysis.

SAMPLE SIZE
◦ Data of ten small cap companies and eight various ratios were taken for
conducting the research.
◦ Market capitalization was taken into consideration while selecting companies.

RESULTS OF THE STUDY AND
DISCUSSION
Function Eigenvalue % of variance Cumulative % Canonical Correlation
1 6.571a 100.0 100.0 .932
TABLE 1
Eigenvalue

TABLE 2-
Wilks’Lambda
Test of Functions(s) Wilks’ Lambda Chi-square df Sig.
1 .132 14.171 2 .001
14th INTERNATIONAL CONFERENCE INDUSTRY 4.0 : OPTIMISING OPERATIONS AND
SHAPING THE FUTURE OF BUSINESS 9

Standardized Canonical Discriminant
Function Coefficients
Standardized Canonical Discriminant Function Coefficients
Function
1
P/E 1.217
Div Yield 1.040

Structure Matrix
Structure Matrix
Function
1
P/E .575
P/Ba .554
Current Ratioa .473
Div Yield .289
Inventory Turnovera .280
D/Ea .262
EPSa .260
NetProfita .212
a. This variable not used in the analysis.
TABLE 4

TABLE 5
Canonical Discriminant Function Coefficients
Function
1
P/E .243
Div Yield .857
(Constant) -2.583

Functions at Group Centroids
Functions at Group Centroids
Status
Function
1
non bankrupt 2.293
Bankrupt -2.293

Classification Resultsa
Classification Resultsa
Status
Predicted Group Membership
Total
non bankrupt bankrupt
Original Count non bankrupt 5 0 5
Bankrupt 0 5 5
% non bankrupt 100.0 .0 100.0
Bankrupt .0 100.0 100.0

Conclusion
◦ While adding company to portfolio investors may look at P/E ratio and Div
Yield ratio because as per analysis these two ratios play important role in
classifying company as bankrupt and non-bankrupt.
◦ There are various ratios available, but only looking at these two ratios investors
can select company for investment because other ratios are summarized in this
only.
◦ An analyst or investor who wants to choose securities based on values that
measure volatility and historical consistency may use Discriminant Analysis in
order to factor out other variables such as price of the stock.

CONCLUSION
◦ The present study is an analytical in nature because it goals at figuring out and assessing the
ability of numerous financial ratios in discriminating among and Bankrupt and Non bankrupt
corporations.
◦ The statistics used is secondary in nature and makes use of ratios of ten small cap organizations
grouped in to bankrupt and non-bankrupt. Ratios used had been EPS ,P/E , Div Yield ,Debt to
Equity, Net Profit, Current Ratio ,P/B ,Inventory Turnover, then step wise discriminant analysis
was applied in order to know which ratios had major impact in classifying companies as
bankrupt and non-bankrupt.
◦ From analysis P/E ratio and Div Yield ratios came out to be the two most important ratio which
help in classifying organizations as bankrupt and non-bankrupt.

Conclusion
◦ In conclusion, it may be stated that everyone covered variables having a discriminatory character, the div
yield and charge to income have a vital effect.
◦ Thus, it changed into observed that out of 8 classes of ratios best classes of ratio have the predictive
capacity to discriminate among non-bankrupt and bankrupt firms.

◦ The PE ratio is the contemporary charge of the inventory divided with the aid of using the
pronounced income in keeping with percentage of the inventory.
◦ As a result, the PE of an inventory is challenge to day by day change. Since, the future income of
an organization are frequently built into the charge of an inventory, the PE ratio indicates to
what quantity the charge is worth the incomes of the proportion of the beyond 12 months.
◦ It is largely the charge you're inclined to pay for Rs 1 of an organization's income. Given that
destiny income of an organization are uncertain, strong organizations are capable of extract a
top rate for his or her income.
◦ It has little to do with the returns that a inventory should deliver.

Conclusion
◦ Dividend Yield ratio is the ratio among the organization and the organization’s current share
price- this represents the danger inherently worried in the organization.
◦ The dividend yield ratio shows how plenty a company is paying out in dividends every 12
months in terms of marketplace charge of percentage.
◦ Only profit-making organizations pays dividends due to the fact dividends also are taken into
consideration as a signal of a stable organization, so it can be said that non profit making
organization can not pay the dividend.

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