Predicting Business Failure for Small Medium Enterprises (SMEs): The Role of Financial Ratios

Abstract

Business failure identification is an effort of early warning system of business activities in every single scale, including small medium enterprises. Mostly, business failure identification conducts in banking sector or big enterprises to detect potential bankruptcy. Since 1968, Altman already set business clasification model with Z-Score. The different result in classification is because of: First, modelling technique used  in classification such as Discriminant Analysis Model, logit model, probit model or survival analysis; Secondly, data released from enterprises; Thirdly, the definition failure or not failure depends on local enterprises; Lastly, there is no standard result of testing. This research briefly reconstrucs business classification model that could contribute to develop classification model of  SMEs in Indonesia as early warning system, respectively.