Proceedings

Table 4. Coefficients of the classification functions and the structure matrix
Variables
Standardized
function
Structure matrix
State of the company
Insolvent Solvent
IEV 0.695 0.566 -0.075 -0.005
IMC 0.190 0.308 0.180 0.266
IVFCF -0.797 -0.687 0.093 -0.017
Constant - - -0.899 -0.779
In what concerns the impact of each method, we will take into consideration the
values of the specific indexes of the three evaluation techniques, the results being
synthesized in Table 4, in the Structure matrix column. The coefficients
corresponding to each index indicate the degree of correlation between the index and
the standardized classification function, obtained by aggregating the products between
the coefficients and the associated indexes. High values (over 0.5) of the coefficients
in the Structure matrix signal a strong correlation between the associated index and
the classification function, as well as in what concerns influence. We can notice that
in the case of IMC the value of the correlation coefficient is insignificant (0.308),
which demonstrates that the MC method does not significantly contribute to stressing
the differences between the two states of the companies (insolvent/ solvent).
In the case of VFCF, high values of IVFCF indicate the presence of insolvency risk
because of the strong negative correlation (-0.687) between the index and the
Standardized function. The score of the Standardized function, obtained for an
analyzed company, will be significantly diminshed by high values of IVFCF and will
lead to classifying the company in the insolvent group. In contrast with IVFCF, IEV is
strongly and positively correlated (0.566) with the Standardized function, and high
values of this index will determine a high classification score and implicitly including
the analyzed company in the solvent group. The standardized function is the
mathematical model that leads to classifying an analyzed company into the two
categories (solvent/insolvent), based on the belonging of the value of the obtained
score to the classification intervals. This has the form: Score = 0,695IEV + 0,190IMC -
0,797IVFCF, and low values of the scores are associated with insolvent companies,
while high values of the scores are associated with solvent companies. A score close
to -0.337 indicates the presence of the insolvency risk, and a score close to the
average value 0.337 indicates the absence of this risk (these values represent the
averages of the scores corresponding to the two classification groups). Moreover, the
values of the coefficients associated to the indexes of the standardized function also
indicate the importance of the method in obtaining the classification score and
implicitly indicating the state of the company.
Based on these results, we can conclude that the cash flow discount method allows
obtaining distorted results concerning the value of the companies. Insolvent
companies will attempt to hide their unfavorable financial state (their position and
performance) expressed through low values of EV. Solvent companies have a high IEV,
recording low values of IVFCF, thus revealing the usefulness of applying the prudence
principle with the purpose of obtaining a faithful image. In this case we can also state
that the evaluation method based on EV best indicates the position and financial
performance of a company at a given moment, unlike the other two methods.
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