Univariate discriminant analysis method for financial distress prediction

(1) (univariate discriminant method, UDA)

The earliest research on financial distress prediction is the univariate bankruptcy prediction conducted by Fitzpatrick( 1932). Fitzpatrick's related article "Comparison of the ratio of successful industrial enterprises to failed enterprises" 1932. He found that net profit/shareholders' equity and shareholders' equity/liabilities are the two indicators with the highest discriminating ability among all indicators. Due to the lack of advanced statistics and calculation tools at that time, the main research method was to analyze and compare a series of financial ratios between failed enterprises and normal enterprises. This situation lasted until1early 1960 s, and the research on financial risk identification really entered the systematic stage.

1966, William Beaver (1966) put forward the univariate analysis method for the first time in his paper "Financial ratio as a predictor of failure", and put forward a single ratio model, that is, using a single financial ratio to predict the financial difficulties of enterprises. He found that the best discriminant variables are working capital flow/liabilities (90% of bankrupt companies were successfully discriminated one year before the company went bankrupt) and net profit/total assets (the success rate of discrimination at the same stage was 88%).