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The file P14_07.xlsx contains data on 74 companies that have either gone bankrupt or haven’t. The data set also contains data on five frequently quoted accounting ratios. a. Create a pivot table that shows the average of each ratio, broken down by the Yes/No values in column G. Comment on which ratios seem to have an effect on whether a company goes bankrupt. b. Use logistic regression to classify companies as bankrupt or not, using all five of the accounting ratios. Does this do a good job of classifying? Are any of the ratios insignificant? c. Experiment with logistic regressions that use only two of the accounting ratios. Which pair classifies about as well as in part b, but with both ratios significant? Could the high p -values in part b be due to multicollinearity?

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Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659
BuyFindarrow_forward

Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659

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Chapter
Section
Chapter 14.2, Problem 7P
Textbook Problem
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The file P14_07.xlsx contains data on 74 companies that have either gone bankrupt or haven’t. The data set also contains data on five frequently quoted accounting ratios.

  1. a. Create a pivot table that shows the average of each ratio, broken down by the Yes/No values in column G. Comment on which ratios seem to have an effect on whether a company goes bankrupt.
  2. b. Use logistic regression to classify companies as bankrupt or not, using all five of the accounting ratios. Does this do a good job of classifying? Are any of the ratios insignificant?
  3. c. Experiment with logistic regressions that use only two of the accounting ratios. Which pair classifies about as well as in part b, but with both ratios significant? Could the high p-values in part b be due to multicollinearity?

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Expert Solution

a)

Summary Introduction

To create: The pivot table that shows the average of each ratio.

Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.

Explanation of Solution

In the above table,

WC/TA refers working capital to total assets

RE/TA refers retained earnings to total assets

EBIT/TA refers earnings before interest and taxes to total assets

MVE/TA refers market value of equity to total assets

S/TA refers to total assets

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Expert Solution

b)

Summary Introduction

To classify: The companies as bankrupt or not using logistic regression.

Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.

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Expert Solution

c)

Summary Introduction

To classify: The companies as bankrupt or not using logistic regression use pair of accounting ratios.

Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.

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