Categorizing enterprises through advanced operating profit margin metrics

Abstract

The research objective is to test the potential for overcoming limitations in the interpretation of ratios, with a focus on Operating Profit Margin (OPM). The research examines the OPM values of 43 enterprises over five consecutive accounting periods. It uses Linear Discriminant Analysis (LDA) to determine the range of OPM values and assess financial performance more dynamically. The methodology focuses on calculating the OPM for each enterprise, followed by a categorization into successful, neutral or bankrupt based on the financial results derived from the financial reports. This research not only challenges traditional financial ratio analysis, but also contributes to strategic financial management by allowing a more detailed categorization of enterprises based on their operational profitability, thus providing a robust tool for financial decision making and predictive analysis.