| dc.description.abstract | Financial crisis has raised concerns for years and its effect on companies influence economies globally. Financial distress of an organization is defined as a condition where obligations are not met, or are met with difficulty. This study explores and weights features for Financially Distressed Companies in the Construction Industry using Swarm Inspired Projection (SIP) algorithm. The financial ratios involved provide useful quantitative financial information to both investors and analysts so that they can evaluate the operation of a firm and analyze its position within a sector over time. This research brings awareness to managers as to which features they have to focus on at the same time not neglecting other features. All the ratios involved, each play a crucial role. It employs the SIP algorithm as a new analysis tool for forecasting financial distress. In this paper, the SIP algorithm is combined with the Principal Component Analysis (PCA) to determine the weights of the features and to adjust these weights to suit the profitability of these construction companies. The analyses identifies the most likely variables responsible for financial distress in these companies. It makes use of 25 different ratios; profit margin, return on assets, after tax rate of return, operating profit to after-tax rate of return, operating profit to paid-in capital ratio, earning per share, operating margin, revenue growth rate, growth rate of total assets, equity ratio, receivables turnover, total assets turnover etc., covering a maximum of fifty five construction companies in Taiwan.
The data available in this study covers both the ‘Failed’ and ‘non-failed’ construction companies but the focus is on failed construction companies. The combination of the two techniques used in this research not only identifies the parameters or features responsible for financial distress but also enhances the variance percentage of the results obtained. The variance percentage in this case measures the percentage variability of the ratios in the selected components with the rest of the other components. The study made use of 1615 effective financial reports from the 55 construction companies over the last decade (1998-2008) for the analysis in this paper. The data used is derived from the Taiwan Economic Journal (TEJ) which provides accurate and reliable data on companies throughout Asia. Based on the 25 ratios used, the PCA, without incorporating the SIP algorithm, initially achieved a variance percentage of 74.3%. Incorporating the SIP algorithm model in the analysis first to cluster, then the PCA to classify the data, raised variance percentages in the three clusters 1, 2, and 3 respectively, enhancing performance to 91.4%, 88.5%, and 89.3%. This gives us an average of 90%.
This method, compared to other methods most commonly used in financial analysis provides better reliability in the identification of the principal features in bankruptcy analysis. Corporate financial distress is a major concern to business sectors worldwide, therefore using both clustering and statistical techniques in unison is a better basis in mitigating bankruptcy to both practitioners and researchers. | en_US |