Cash Prediction for Small and Medium Enterprises by Option Approach

Abstract

Cash management is important to avoid cash-shortage, especially for Small and Medium Enterprises(SME) due to lack of excess cash. Whereas, cash management at SME is not sufficient because of its complexity and high cost. Therefore, we investigate a convenient method to predict a time to cash-shortage and an amount of shortage by Option Approach. In this study, We calculates a probability of default by using Option Approach, regarding its " asset " and " debt " as cash amount and any amount respectively. We evaluated Area Under Curve (AUC) by changing a prediction term, debt amount and calculation term of asset. We found several facts: max AUC is 0.81, short prediction term or large cash decrease makes high AUC, and calculation term is very small relation to AUC. As a result, Option Approach can predict a cash of SME in short term or large change. This approach is useful for cash management of SME to decide an acceptable debt amount and terms.