Binary Classification Model for Company Bankruptcy Prediction Using Scikit-Learn Take 1

Template Credit: Adapted from a template made available by Dr. Jason Brownlee of Machine Learning Mastery.

SUMMARY: This project aims to construct a predictive model using various machine learning algorithms and document the end-to-end steps using a template. The Company Bankruptcy Prediction dataset is a binary classification situation where we attempt to predict one of the two possible outcomes.

INTRODUCTION: The research team collected the data from the Taiwan Economic Journal from 1999 to 2009. Company bankruptcy was defined based on the business regulations of the Taiwan Stock Exchange. Because not catching companies in a shaky financial situation is a costly business proposition, we will maximize the precision and recall ratios with the F1 score.

The data analysis first appeared on the research paper, Liang, D., Lu, C.-C., Tsai, C.-F., and Shih, G.-A. (2016) Financial Ratios and Corporate Governance Indicators in Bankruptcy Prediction: A Comprehensive Study. European Journal of Operational Research, vol. 252, no. 2, pp. 561-572.

This Take1 iteration will construct and tune several classic machine learning models using the Scikit-Learn library. We also will observe the best results that we can obtain from the models.

ANALYSIS: The average performance of the machine learning algorithms achieved an F1 score of 94.37%. Two algorithms (Extra Trees and Random Forest) produced the top F1 metrics after the first round of modeling. After a series of tuning trials, the Extra Trees model turned in an F1 score of 97.39% using the training dataset. When we applied the Extra Tree model to the previously unseen test dataset, we obtained an F1 score of 55.55%.

CONCLUSION: In this iteration, the Extra Trees model appeared to be a suitable algorithm for modeling this dataset. We should consider using the algorithm for further modeling.

Dataset Used: Company Bankruptcy Prediction Data Set

Dataset ML Model: Binary classification with numerical attributes

Dataset Reference:

One potential source of performance benchmark:

The HTML formatted report can be found here on GitHub.