The Default Risk of Unprofitable Companies with High Capitalization

The aim of this bachelor thesis its to improve the existing bankruptcy prediction model for the specific sample of unprofitable enterprises with market capitalization higher than 100 mln USD. The accounting-based approach was chosen and Altman’s ZETA model (1977) was used as a benchmark. We performed several variable selection procedures and found out that the logit model with four particular regressors has the best out-of-sample fit. The regressors included in our final model are: retained earnings divided by total assets, net income divided by sales, earnings before interest and taxes (EBIT) divided by total assets and the standard deviation of the EBIT one year ahead forecast. The derived model can be used for evaluation of the risk of unprofitable high valued enterprises. In the presence of an increasing number of such companies on the market, this paper provides becomes a useful contribution to the existing pool of scientific literature on the evaluation of a company’s default probability.