A corporate failure prediction method based on Monte Carlo simulation technique

Corporate failure analysis is a hot topic for business research now. The last work was mainly focused on the methods to discriminate current company position according to existing business financial data. Corporate failure prediction method based on Monte Carlo simulation(CFPM-MC) is proposed. The new method employs Monte Carlo simulation to simulate the next period's financial data, calculates the financial ratios via parameter equations, obtains the probability of corporate failure according to a discriminant model, and foresees whether corporate failure occurs or not with the business decision for next period. So CFPM-MC can predict future business position to meet decision maker requirement. At the end, a simple is presented to show the validity of CFPM-MC.