An application of discriminant analysis in determining the performance of the selected stock brokerage firms in the Philippines for the period 1996-2000

• Main Authors: Francisco, Mari Dominique N., Ricasio, Maria Regina R., Rodriguez, Melanie S., Tavanlar, June Pearl Jean A.
• Format: text
• Language: English
• Published: Animo Repository 2002
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/17259
• Institution: De La Salle University

Interest in the areas of stockbrokerage and in the discriminant analysis has led the proponents to pursue the study. Since stockbrokerage firms are greatly affected by changes in the stock market, the proponents are interested in knowing the underlying reasons for the success and failure of these firms. Thus, the main objective is to determine which of among the independent variables-working capital, accounts receivable turnover, total asset turnover, debt ratio, return on investment, operating profit margin, net profit margin, and commission income-has the most significant effect on the return on equity. The use of discriminant analysis is very instrumental to the completion of the study. Discriminant analysis can address research objectives that are in line with the study's objectives. These are: (1) to assess which among the indicators, such as working capital, accounts receivable turnover, total asset turnover, debt ratio, return on investment, operating profit margin, net profit margin, and commission income, has the most significant discriminatory power (2) to determine if the indicators are significant factors for a firm to outperform or to underperform the average return on equity of the industry and (3) to develop a contemporary evaluative model that will accurately analyze the financial condition of stockbrokerage firms when they are subjected to test. With the discriminant analysis, the proponents were able to project the status of the company whether they are outperforming or underperforming. The model, which operates the standard method of analysis, has 100% accuracy in discriminating firms that outperform the industry average return on equity and 86.20% accuracy of discriminating firms that underperform the industry average return on equity. Furthermore, it is 95% accurate in classifying stockbrokerage firms as outperformers or underperformers, which explains that the calculations of the discriminant function are significantly better than chance. The proponents conclude that the return on assets ratio has the highest discriminatory power, followed by debt ratio. Thus, focus must be agreed on these two financial ratios. The proponents recommend, among others, that stockbrokerage firms should be sensitive and responsive to variables that affect their position in the industry the most. Sensitivity to these variables can make possible the prediction into what group, underperformer or outperformer, the firm can belong in the future.