Determining Accuracy of IN05 Index and its Improvement

Michal Kuběnka

doi:10.5817/FAI2016-2-1

Determining Accuracy of IN05 Index and its Improvement

Vol.7,No.2(2016)

Michal Kuběnka

https://doi.org/10.5817/FAI2016-2-1

PDF

Abstract

The IN05 index is probably the only one model in the world that predicts economic value added (EVA). Determining a positive or negative EVA is conducted based the level of return on equity (ROE). The threshold of the level depends on the changing value of implicit cost of equity (re). The Czech economy has undergone many changes including the economic crisis during the ten years following the creation of the IN05 index. This research uses financial data of 1,224 companies in the manufacturing sector. A very low current prediction power of IN05 was detected in prediction of prosperity. The main benefit of the research is finding a way to increase accuracy of economic value added prediction.

Keywords:
IN05 index; prosperity; economic value added; ROE

References

Altman, E. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. The Journal of Finance, 23(4), pp. 589–609. https://doi.org/10.1111/j.1540-6261.1968.tb00843.x

Altman, E. I. (2002). Revisiting Credit Scoring Models in a Basel 2 Environment. NYU Working Paper. Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.196.55&rep=rep1&type=pdf.

Altman, E. I. (2006). Corporate Financial Distress and Bankruptcy: Predict and Avoid Bankruptcy, Analysis and Invest in Distressed Debt. 3rd ed. New Jersey: John Wiley & Sons.

Castagnolo, F. and Ferro, G. (2014). Models for predicting default: towards efficient forecast. The Journal of Risk Finance, 15(1), pp. 52–70. https://doi.org/10.1108/JRF-08-2013-0057

Choi, F. D. S. (2003). International Finance and Accounting Handbook. New Jersey: John Wiley and Sons.

Delina, R. and Packová, M. (2013). Validácia predikčných bankrotových modelov v podmienkach SR. Ekonomika a management, 3(16), pp. 101–112.

Delina, R., Packová, M. (2013). Validace predikčních bankrotních modelů v podmínkách SR. Ekonomie a management, 17(3), pp.101-112.

Kangarloei, S. J. et al. (2012). The Investigation of the Relationship between Economic Value Added (EVA) and Return on Assets (ROA) in Tehran Stock Exchange (TSE). Business Management Dynamics, 1(11), pp. 01-05.

Karas, M. and Režňáková, M. (2015). Are the Bankruptcy Predictors Specific for a Given Time or Branch? The evidence from the Czech Manufacturing and Construction Companies. In: Proceedings of the 7th International Scientific Conference: Finance and the performance of Firms in Science, Education and Practice. Zlín: Universita Tomáše Bati, Fakulta managementu a ekonomiky, pp. 571-583.

Karas, M. and Režňáková, M. (2012). Financial Ratios as Bankruptcy Predictors: The Czech Republic Case. In Advances in Finance & Accounting: Proceeding of the 1st WSEAS International Conference on Finance, Accounting and Auditing (FAA 12), pp. 86-91.

Karas, M. and Režňáková, M. (2014). Možnosti využití bankrotního modelu k měření úvěrového rizika podniku. In: Hradecké ekonomické dny. Hradec: Univerzita Hradec Králové, pp. 435-442.

Kuběnka, M. (2015). Finanční stabilita podniku a její indikátory. Pardubice: Univerzita Pardubice.

Kuběnka, M. and Slavíček, O. (2014). Detection of Cognation between Creditworthy Models and Bankruptcy Models. In: Managing and Modelling of Financial Risks. Ostrava: Technická univerzita Ostrava, pp. 426-433.

Kyriazis, D. and Anastassis, C. (2007). The Validity of the Economic Value Added Approach: an Empirical Application. European Financial Management, 13(1), pp. 71–100. https://doi.org/10.1111/j.1468-036X.2006.00286.x

Lee, A. C., Lee, J. C., and Lee, CH. F. (2009). Financial analysis, Planning and Forecasting, Theory and Application. Singapore: World Scientific Publishing Co. Pte. Ltd.

Lízalová, L. (2010). Vývoj ukazatele EVA ve vybraných odvětvích českého průmyslu. Logos Polytechnikos, 1(3), pp. 18-29.

Máče, M. (2005). Finanční analýza obchodních a státních organizací - praktické příklady a použití. Praha: Grada.

Maňasová, Z. (2008). Úpadky podniků v České republice a možnosti jejich včasné predikce. Praha. Doctoral thesis. Praha: Vysoká škola ekonomická v Praze, Fakulta podnikohospodářská.

Ministry of Industry and Trade. Methodological part [online]. [cit. 2015-04-06]. Available at: http://www.mpo.cz/cz/infa-cznace-metodika.pdf.

Neumaier, I. and Neumaierová, I. (2008). Proč se ujal index IN a nikoli pyramidový systém ukazatelů INFA. Ekonomika a management, 4, pp. 1-10.

Neumaier, I. and Neumaierová, I. (2005). Index IN05. In: Evropské finanční systémy. pp.143-148.

Neumaier, I. and Neumaierová, I. (2010). Index IN05 pro indikaci krize. In: Jak dál po krizi. Praha: Oeconomica, pp. 28–33.

Neumaierová, I. and Neumaier, I. (2002). Výkonnost a tržní hodnota firmy. Praha: GRADA Publishing, a.s.

Pacáková, V. et al. (2003). Štatistika pre ekonómov. Bratislava: IURA EDITION.

Růčková, P. (2011). Finanční analýza: metody, ukazatele, využití v praxi, 4th ed. Praha: Grada Publishing.

Seppa, R. (2014). Implication of imide-debt: signalling for bankruptcy probabilities within small firms. Baltic Journal of Management, 9(2), pp. 168–188. https://doi.org/10.1108/BJM-03-2013-0043

Sušický, J. (2011). Využitelnost bankrotních modelů a jejich aplikace v podmínkách České republiky. Doctoral thesis. Praha: Česká zemědělská univerzita v Praze.

Taffler, R. J. (1982). Forecasting Company Failure in the UK Using Discriminant Analysis and Financial Ratio Data. The Journal of the Royal Statistical Society. 145(3), pp. 342–358. https://doi.org/10.2307/2981867

Tortella, B. D. and Brusco, D. S. (2003). The Economic Value Added (EVA): An Analysis of Market Reaction. Advances in Accounting, 20, pp. 265–290. https://doi.org/10.1016/S0882-6110(03)20012-2

Vochozka, M. (2011). Metody komplexního hodnocení podniku, 1st ed. Praha: Grada Publishing.

Vochozka, M. and Stehel, V. (2013). Shareholder´s Value in Entreprise Activity Plans. Vestnik of Astrakhan State Technical University Series: Economics. 1, pp. 9-16.