Financial soundness index for the private corporate sector in Colombia
Temas de Estabilidad Financiera ; No. 82
Fecha de publicación2015-11-07
Idioma del documentoeng
Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.
This paper has as main objective to build a composite metric of financial soundness for the private corporate sector in Colombia. Instead of relying on the individual and sometimes restrictive financial ratio analysis approach, the purpose of this document is to provide a single metric aimed at measuring the financial health of firms. Said metric, the financial soundness index, is derived by employing the cross-section approach of principal component analysis. For the time period of 2000-2013, the results allow to identify which industries have a weak, strong or similar balance sheet performance relative to that observed for the private corporate sector as a whole. Furthermore for firms that are debtors of the Colombian financial system, validation tests on the index confirm the apparent relationship between accounting data and the credit risk perception of and materialization for financial intermediaries.