Investing Wisely: An Explainable AI Approach to Identifying Profitable Companies

The application of advanced machine learning (ML) techniques has transformed investment strategies in public companies, offering superior computational power and accuracy.

The application of advanced machine learning (ML) techniques has transformed investment strategies in public companies, offering superior computational power and accuracy. However, the inherent complexity of these models often creates challenges for informed decision-making. This article presents an innovative explainable AI (XAI) model designed to analyze corporate financials and predict expected returns by assessing credit risk and profitability. By utilizing Shapley values, the model enhances transparency by providing interpretable explanations of AI-generated predictions. An empirical analysis of 1,700 public companies demonstrates the ability to reliably forecast expected returns using a combination of financial indicators, thereby helping investors make informed decisions.