Best proxy to determine firm performance using financial ratios: A CHAID approach
The main purpose of this study is to investigate the best predictor of firm performance among different proxies. A sample of 287 Czech firms was taken from automobile, construction, and manufacturing sectors. Panel data of the firms was acquired from the Albertina database for the time period from 2...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Sciendo
2022-09-01
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| Series: | Review of Economic Perspectives |
| Subjects: | |
| Online Access: | https://doi.org/10.2478/revecp-2022-0010 |
| _version_ | 1828108597107621888 |
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| author | Yousaf Muhammad Dey Sandeep Kumar |
| author_facet | Yousaf Muhammad Dey Sandeep Kumar |
| author_sort | Yousaf Muhammad |
| collection | DOAJ |
| description | The main purpose of this study is to investigate the best predictor of firm performance among different proxies. A sample of 287 Czech firms was taken from automobile, construction, and manufacturing sectors. Panel data of the firms was acquired from the Albertina database for the time period from 2016 to 2020. Three different proxies of firm performance, return of assets (RoA), return of equity (RoE), and return of capital employed (RoCE) were used as dependent variables. Including three proxies of firm’s performance, 16 financial ratios were measured based on the previous literature. A machine learning-based decision tree algorithm, Chi-squared Automatic Interaction Detector (CHAID), was deployed to gauge each proxy’s efficacy and examine the best proxy of the firm performance. A partitioning rule of 70:30 was maintained, which implied that 70% of the dataset was used for training and the remaining 30% for testing. The results revealed that return on assets (RoA) was detected to be a robust proxy to predict financial performance among the targeted indicators. The results and the methodology will be useful for policy-makers, stakeholders, academics and managers to take strategic business decisions and forecast financial performance. |
| first_indexed | 2024-04-11T10:49:07Z |
| format | Article |
| id | doaj.art-b28e8658bc3a4b22a4cc265add1032c8 |
| institution | Directory Open Access Journal |
| issn | 1804-1663 |
| language | English |
| last_indexed | 2024-04-11T10:49:07Z |
| publishDate | 2022-09-01 |
| publisher | Sciendo |
| record_format | Article |
| series | Review of Economic Perspectives |
| spelling | doaj.art-b28e8658bc3a4b22a4cc265add1032c82022-12-22T04:28:58ZengSciendoReview of Economic Perspectives1804-16632022-09-0122321923910.2478/revecp-2022-0010Best proxy to determine firm performance using financial ratios: A CHAID approachYousaf Muhammad0Dey Sandeep Kumar1Faculty of Management and Economics, Tomas Bata University in Zlin, Mostni 5139, Zlin76001, Czech RepublicFaculty of Management and Economics, Tomas Bata University in Zlin, Mostni 5139, Zlin76001, Czech Republic, and Czech Mathematical Society, Prague, Czech RepublicThe main purpose of this study is to investigate the best predictor of firm performance among different proxies. A sample of 287 Czech firms was taken from automobile, construction, and manufacturing sectors. Panel data of the firms was acquired from the Albertina database for the time period from 2016 to 2020. Three different proxies of firm performance, return of assets (RoA), return of equity (RoE), and return of capital employed (RoCE) were used as dependent variables. Including three proxies of firm’s performance, 16 financial ratios were measured based on the previous literature. A machine learning-based decision tree algorithm, Chi-squared Automatic Interaction Detector (CHAID), was deployed to gauge each proxy’s efficacy and examine the best proxy of the firm performance. A partitioning rule of 70:30 was maintained, which implied that 70% of the dataset was used for training and the remaining 30% for testing. The results revealed that return on assets (RoA) was detected to be a robust proxy to predict financial performance among the targeted indicators. The results and the methodology will be useful for policy-makers, stakeholders, academics and managers to take strategic business decisions and forecast financial performance.https://doi.org/10.2478/revecp-2022-0010czech firmsdecision treefinancial ratiosfirm performancereturn on assetsg00l25 |
| spellingShingle | Yousaf Muhammad Dey Sandeep Kumar Best proxy to determine firm performance using financial ratios: A CHAID approach Review of Economic Perspectives czech firms decision tree financial ratios firm performance return on assets g00 l25 |
| title | Best proxy to determine firm performance using financial ratios: A CHAID approach |
| title_full | Best proxy to determine firm performance using financial ratios: A CHAID approach |
| title_fullStr | Best proxy to determine firm performance using financial ratios: A CHAID approach |
| title_full_unstemmed | Best proxy to determine firm performance using financial ratios: A CHAID approach |
| title_short | Best proxy to determine firm performance using financial ratios: A CHAID approach |
| title_sort | best proxy to determine firm performance using financial ratios a chaid approach |
| topic | czech firms decision tree financial ratios firm performance return on assets g00 l25 |
| url | https://doi.org/10.2478/revecp-2022-0010 |
| work_keys_str_mv | AT yousafmuhammad bestproxytodeterminefirmperformanceusingfinancialratiosachaidapproach AT deysandeepkumar bestproxytodeterminefirmperformanceusingfinancialratiosachaidapproach |