Abstract
The funds that enterprises invest in assets come from either equity financing or debt financing. Whether these funds are effectively invested in the money-making assets is the critical issue of the creation of revenues in enterprises. Whereas, since the Taiwanese enterprises’ capital capacity are relatively lower than the foreign ones, they mostly take bank loans as a second equity; and since the concept of credit-worthiness is not yet developed, the collaterals are usually required to apply for a bank loan. Therefore, the enterprises may deploy the funds in low-efficiency real estate. From the creditors’ point of view, focusing on high capex companies, the present study makes use of DuPont Analysis and Data Envelopment Analysis (DEA) to build a set of critical and effective financial control indicators in order to predict the risk of financial crises and thus provide them for banks as a preliminary reference at the moment of the assessment of credit granting. The present study contains five key points, as follows: (1) EBITDA and the concept of liability risk are taken into the scope of assessment of DuPont Analysis. (2) DuPont Analysis ratio is divided into two dimensions, i.e. poor profitability and poor constitution security, including 5 indicators, which are to be used as the critical data to assess the financial crises of the high capex enterprises. (3) According to the correlation between the critical data and enterprises facing a financial crisis, the critical data is divided into 3 input variables and 2 output variables as the variables in DEA. (4) The model for obtaining efficient frontier in DEA is modified as reverse model in order to obtain the inefficient frontier and then focus on the enterprises facing a financial crisis in order to facilitate the direct assessment and analysis. (5) Through the enterprises reaching inefficient frontier, the enterprises actually facing a financial crisis are verified and the financial ratio is taken as the controlling threshold of credit granting. According to the financial data of the listed companies in the electronic technology industry from 2006 to 2007 from Taiwan Economic Journal (TEJ) database, the present study predicts the enterprises that will face a financial crisis in 2008. For this, the high capex company are defined as the enterprises whose fixed assets account for more than 50% of their total assets and whose fixed assets are ranked as top 50, excluding the overseas listed enterprises or the enterprises having extremely good or extremely poor credit scores. The present study shows that 6 enterprises actually breaching financial covenants can be predicted using their financial mean one or two years ago and the reverse DEA, representing 100% discriminatory ability. However, a Type-I error is also found in one or two enterprises, that is, the non-distressed enterprises are classified as distressed enterprises. But, owing to the banks’ conservative stance of credit granting, such Type-I error has a smaller effect than a Type-II error and the critical value of breach in financial ratio accordingly obtained can still become a reference for the prediction of the subsequent enterprises facing a financial crisis.