Publications:A novel approach to exploring company's financial soundness: Investor's perspective
From ISLAB/CAISR
| Title | A novel approach to exploring company’s financial soundness: Investor’s perspective |
|---|---|
| Author | Zivile Kalsyte and Antanas Verikas |
| Year | 2013 |
| PublicationType | Journal Paper |
| Journal | Expert systems with applications |
| HostPublication | |
| Conference | |
| DOI | http://dx.doi.org/10.1016/j.eswa.2013.03.031 |
| Diva url | http://hh.diva-portal.org/smash/record.jsf?searchId=1&pid=diva2:630745 |
| Abstract | Prediction of company’s life cycle stage change; creation of an ordered 2D map allowing to explore company’sfinancial soundness from a rating agency perspective; and prediction of trends of main valuationattributes usually used by investors are the main objectives of this article. The developed algorithms arebased on a random forest (RF) and a nonlinear data mapping technique ‘‘t-distributed stochastic neighborembedding’’.Information from five different perspectives, namely balance, income, cash flow, stock price, and risk indicatorswas aggregated via proximity matrices of RF to enable exploration of company’s financial soundnessfrom a rating agency perspective. The proposed use of information not only from companies’financial statements but also from the stock price and risk indicators perspectives has proved useful increating ordered 2D maps of rated companies. The companies were well ordered according to the creditrisk rating assigned by the Moody’s rating agency.Results of experimental investigations substantiate that the developed models are capable of predictingshort term trends of the main valuation attributes, providing valuable information for investors, withlow error. The models reflect financial soundness of actions taken by company’s management team. Itwas also found that company’s life cycle stage change can be determined with the average accuracy of72.7%. Bearing in mind fuzziness of the transition moment, the obtained prediction accuracy is ratherencouraging. |
