PREDICTION MODEL OF FIRM´S FINANCIAL DISTRESS

Journal Title: Ekonomicko-manazerske spektrum - Year 2018, Vol 12, Issue 1

Abstract

The issue of classification of firms and the construction of a predictive model of their financial distress has long been in the focus of the attention of economists and scientists in different countries around the world. Since the 30´s of the last century, they have been trying to create an economic model with a strong predictive ability or with a high degree of correct classification that, under the conditions of given country, could detect with a high level of reliability the financial distress or properly classify the company into a group of companies threatened by financial difficulties or bankruptcy. In case of Slovakia, the research of this area is being lacked. So far, some models have been presented to the professional public and, if it is necessary, it is rather preferred to use foreign prediction models. Their predictability, however, generally decreases under the conditions of the Slovak economy as they were created in another economic environment. Our model is based on the principles of the multivariate discriminant analysis, the first method of predicting bankruptcy. The presented model is relatively robust because it is based on real data from the financial statements of more than 30,000 enterprises for the year 2016 with the retrospective verification on data from the year 2015 and 2014. The model is generally applicable, it is not sector-oriented, and its discriminant function consists of financial indicators, which are clearly quantifiable. The model classifies enterprises as “prosperous” or as “unprosperous”, where prosperous firms are in a good financial condition, and on the other hand, unprosperous firms are in the financial crisis, or are close to the bankruptcy. The model´s primary objective is to identify a financial crisis correctly in order to adopt timely corrective actions by company´s managers and shareholders or as a warning sign for external entities.

Authors and Affiliations

Lucia Svabova, Katarina Kramarova, Marek Durica

Keywords

Related Articles

OVERCOMING PARADOX FOR SOCIAL ENTERPRISE DEFINITION: CASE OF LITHUANIA

The study explores dilemma around de jure adopted social enterprise conception and social enterprise universe de facto developing through bottom-up initiatives. The presented analysis of Lithuania case presents sitaution...

SMART SERVICES AND THEIR BENEFITS FOR MANUFACTURERS FROM A GLOBAL PERSPECTIVE

Current manufacturers do not provide only tangible products to their customers, but also deliver services and integrated solutions in today’s globalized environment. Furthermore, they effort also on implementing ‘smart s...

THE SEARCH FOR BALANCE AND EQUILIBRIUM OF NEGOTIATING POWERS UNDER DISTORTED MARKET COMPETITION

Free market economy challenges business negotiations due to occasional distortions in market conditions, which impact the balance of negotiating powers. This is most commonly referred to both buyers and sellers. Reducing...

GLOBALIZATION, GROWTH AND INEQUALITY: TESTING CAUSALITY AND ASYMMETRIES

Interest about income distribution and inequality have substantially grown in recent years. First of all, it can be explained by the increase in inequality as a major threat for the stability of society and economy, that...

CHOSEN ASPECTS OF IT SYSTEMS IN MANAGEMENT AND ACCOUNTING IN COMPANIES UNDER GLOBALIZATION

The functioning of enterprises undergoes continuous processes along with changes taking place in the environment. Such processes, like the globalization of economy, taking into consideration the issues of CSR, competitiv...

Download PDF file
  • EP ID EP592423
  • DOI 10.26552/ems.2018.1.16-29
  • Views 92
  • Downloads 0

How To Cite

Lucia Svabova, Katarina Kramarova, Marek Durica (2018). PREDICTION MODEL OF FIRM´S FINANCIAL DISTRESS. Ekonomicko-manazerske spektrum, 12(1), 16-29. https://www.europub.co.uk/articles/-A-592423