ACCT3015 Semester 2, 2022
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ACCT3015 Semester 2, 2022
Assignment – Part B
PART B: Machine Learning for predicting bankruptcy [30 marks total, worth 60%]
Note, that the 30 marks we award in this part of the assignment, will be rescaled down to 15 marks, which will accountfor 60% of your total assignment grade (i.e., 15 out of 25). Please respond to each of the 5 questions equally, given the mark allocation provided below.
Refer to the general instructions documentforfurther information on word count and submission requirements.
INSTRUCTIONS:
1. (5 marks) Consider the corporate bankruptcy prediction problem, and the list of variables in Appendix A. These variables are currently used to predict the probability of corporate failure for a firm, using annual financial and market data. Recommend additional variables, which are likely to be associated with the prediction of corporate bankruptcy and hence likely to improve the predictive power of the machine learning models. You should outline new variables that can be created from the existing variables (such as financial ratios), as well as external data sources you can collect from different Big Data sources. Justify why you believe they would be appropriate explanatory variables.
2. (5 marks) Recommend and discuss methods of exploratory data analysis that you would undertake to understand and visualize the data. Explain and motivate your choices.
3. (5 marks) Provide a summary analysis of the predictive performance of the CART model outlined in Appendix B, and an analysis of which variables contributed most to the model’s predictive power. Interpret the CART decision tree.
4. (5 marks) Compare results of the gradient boosting model outlined in Appendix C. Describe and explain any difference in model performance. Identify the role and impact of predictor variables in the CART and gradient boosting models.
5. (5 marks) Outline how the model/(s) can be embedded into a business or accounting process, to facilitate or inform decision-making. You may choose any appropriate business or accounting process.
Presentation and Referencing (additional 5 marks)
• Additional marks are awarded for the presentation of your report, as well as cohesiveness and quality of discussion.
• Please reference, where relevant. Your reference list will not be included in the word count.
Appendix A: Covariates included in models
# |
Variable Name |
Variable Type |
Description |
1 |
act |
Numeric |
Current Assets - Total |
2 |
am |
Numeric |
Amortixation of Intangibles |
3 |
ap |
Numeric |
Accounts Payable - Trade |
4 |
at |
Numeric |
Total Assets |
5 |
bkvlps |
Numeric |
Book value per share |
6 |
capx |
Numeric |
Capital Expenditures |
7 |
ceq |
Numeric |
Common/Ordinary Equity |
8 |
ch |
Numeric |
Cash |
9 |
che |
Numeric |
Cash and short-term investments |
10 |
chech |
Numeric |
Cash and cash equivalents Increase/Decrease |
11 |
csho |
Numeric |
Common shares outstanding |
12 |
dlc |
Numeric |
Debt in current liabilities |
13 |
dltt |
Numeric |
Long Term Debt - Total |
14 |
dt |
Numeric |
Total Debt including current |
15 |
dvc |
Numeric |
Dividends Common/Ordinary |
16 |
dvt |
Numeric |
Dividends - Total |
17 |
ebit |
Numeric |
Earnings Before Interest and Taxes |
18 |
ebitda |
Numeric |
Earnings Before Interest and Taxes, Depreciation and amortization |
19 |
fincf |
Numeric |
Financing activities net cash flow |
20 |
gdwlam |
Numeric |
Goodwill amortization |
21 |
ivncf |
Numeric |
Investing activities net cash flow |
22 |
lct |
Numeric |
Current liabilities - total |
23 |
lt |
Numeric |
Liabilities - total |
24 |
mkvalt |
Numeric |
Market value - total |
25 |
ni |
Numeric |
Net Income (Loss) |
26 |
oancf |
Numeric |
Operating Activities Net Cash Flow |
27 |
optvol |
Numeric |
Volatility - Assumption (%) |
28 |
prcc_f |
Numeric |
Price Close - Annual - Fiscal |
29 |
prch_f |
Numeric |
Price High - Annual - Fiscal |
30 |
prcl_f |
Numeric |
Price Low - Annual - Fiscal |
31 |
revt |
Numeric |
Revenue - Total |
32 |
sale |
Numeric |
Sales/Turnover (Net) |
33 |
spce |
Numeric |
S&P Core Earnings |
34 |
spcsrc |
Categorical |
S&P Quality Ranking - Current |
35 |
teq |
Numeric |
Stockholders Equity - Total |
36 |
tfva |
Numeric |
Total fair value assets (TFVA) |
37 |
tfvl |
Numeric |
Total fair value liabilities (TFVL) |
2022-11-05