stitution which has developed some expertise in financial analysis and monitoring the
operations of companies. In 1985, the government entrusted PNB with the additional
task of monitoring the performance of all government companies, not just those in
PNB’s portfolio. This led to the formation of CICU, the Central Information Collec-
tion Unit, the unit within PNB that performs this function. CICU is charged with the
task of identifying companies in distress at an early stage so that the necessary re-
medial action may be taken by the authorities. A multivariate discriminant analysis
model has been built with applicability mainly for manufacturing companies, and
also for companies in the transportation and service sector.
The sample consisted of 21 companies known to have been in distress paired with
financially sound companies which were entirely Malaysian with business activities
in Malaysia. Forty-one ratios were defined for inclusion in the analysis. Stepwise se-
lection yielded a discriminant function that had seven variables ranked by the level
of contribution to the F statistic as shown in Exhibit 10.16.
10.18 MALAYSIA 10 • 39Years Prior to Failure No of Firms % Correctly Classified
1 29 96.6
2 23 85.2
3 15 71.4
4 4 40.0
5 3 75.0
Year No of Firms % Correctly Classified1988 40 75.0
1989 51 86.3
1990 57 86.0
1991 47 89.4
1992 29 93.1
Total 224 85.7
Exhibit 10.15. Classification Results: Bankrupt Firms K2 Model.
Variable R**2 F-Statistic
R1 0.5307 45.230
R2 0.3921 30.250
R3 0.2388 12.506
R4 0.2275 10.898
R5 0.1360 5.665
R6 0.0333 3.181
R7 0.0795 2.935
R1 = Operating profit/total liabilities
R2 = Current assets/current liabilities
R3 = EAlT/paid-up capital
R4 = Sales/working capital
R5 = Current assets – Stocks – Current liabilities/EBIT
R6 = Total shareholders’ fund/total liabilities
R7 = Ordinary shareholders’ fund/employment of capital
Exhibit 10.16. Discriminant Function Variables.