Page 255 - Contributed Paper Session (CPS) - Volume 3

CPS2011 Dominique H. et al.
Table 1: List of variables for the CFA analysis
S.no. Financial Ratio
1 Return on Assets
2 Return on Common Equity
3 Profit Margin
4 Current Ratio
5 Quick Ratio
6 Cash Ratio
7 Total Debt to Total Asset
8 Long-term Debt to Common Equity
9 Inventory to Sales
10 Inventory to Total Assets
11 Inventory to Current Assets
12 Basic Earnings Per Share
13 Enterprise Value to 12M Sales

Figure 2: CFA model

The second step involves constructing a SOM on the 5 indicators extracted
from the CFA analysis. In the application of self-organizing maps, we rely on
the R based SOMbrero package. The map size is decided after testing several
sizes (3*3, 4*4, 5*5) of the SOM to check that the cluster structures are shown
with sufficient resolution and an acceptable number of empty nodes. We
adopt a 4 by 4 grid in which less than 50% of the nodes are empty. The
algorithm used is described in the previous sub-section, with the Euclidean
distance and Gaussian neighbourhood function. Before implementing, each of
the five indicators is centred and rescaled. To visualize the dynamics over
years, we treat each year as one input dimension. Therefore, we have five maps
corresponding to the five indicators. For each indicator, we have 11

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