Bankruptcy Prediction Model with Risk Factors using Fuzzy Logic Approach

Abstract

Forecasting bankruptcy remains crucial, especially during this pandemic. Managers, financial institutions, and government agencies rely on the information regarding an impending bankruptcy threat to make decisions. This paper developed a straightforward bankruptcy prediction model using the fuzzy logic approach for individuals and companies to evaluate their performance and analyse the tendency of getting bankrupt. A sample of 250 respondents from banks and financial firms were tested using the qualitative risk factors, namely, industrial risk, management risk, financial flexibility, credibility, competitiveness, and operational risk. This study provides a comprehensive analysis using the Fuzzy Inference System (FIS) editor in the MATLAB software, where the model's accuracy is compared to the actual results. The results show an accuracy rate of 99.20%, indicating that this approach can determine the likelihood of bankruptcy. The fuzzy logic approach can improve prediction accuracy while also guiding decision-makers in detecting and preventing possible financial crises in their early phases.