Research On Financial Early-warning Based On Principal Component And Data Envelopment

Since the 1960s, economy of many countries has been developed rapidly, which makes financial problems attracted widespread attention, and which also makes financial crisis triggered by financial problems be taken seriously by corporations. In the background of this, the paper discusses the problem of financial crisis early-warning. Firstly, the concept and basic characteristics of financial crisis early-warning are studied. Secondly, in order to predict and avoid enterprises' financial crisis, this paper introduces a financial crisis early-warning information system on the basic of its model established. In this system, two basic principles are applied. They are methods of Principal Component Analysis and Data Envelopment Analysis. This system can compare and analyze enterprises' financial data, and then find out the answer of whether the company has crisis. It also can identify the crisis problem and prove recommendations for managers. And finally, construct the financial crisis early-warning model for pharmaceutical companies, and empirical study of 150 medicine corporations listed in China. The result shows that comprehensive application of the two methods to financial crisis early-warning is feasible, and shows that in these 150 listed companies only two ST companies and three non-ST companies have the results analyzed by the building model, which deviate from the expected results. So the accuracy of this model is high. Comprehensive application of the two methods fully reflects the reduced-feature of principal component analysis and the multi-objective decision-making feature of data envelopment analysis in the financial crisis early-warning management, and also reflects the advantage of comprehensive application in economic management of operations research methods and statistical methods. The system not only can analyze whether there is a crisis for corporations, but also can provide decision supports to managers according to crisis situations. In order to evade potential risks and improve the competitiveness, enterprise's managers can adjust their strategies and tactics according to the result of the analysis. In conclusion, this model and system not only can enrich and improve the theories and methods of financial crisis early-warning and decision support system, but also can provide practice directions to avoid the potential risks for enterprises.