The activity of any organization operating in a market economy is constantly associated with the emergence of various types of risks. The greatest danger is the risk of bankruptcy, which leads to a temporary or complete cessation of the functioning of business entities.
In this regard, the prediction of bankruptcy risk is of particular importance. Three main methods are used to evaluate it.
The method of using the system of formalized and non-formalized criteria, determined by the subjective assessment of experts (multi-criteria approach; expert method).
Within this system there are two groups of signs of bankruptcy. The first includes indicators showing possible difficulties and the likelihood of financial instability of the organization in the near future:
recurring significant losses in the main activity, expressed in a chronic decline in production, a reduction in sales volumes and a permanent loss ratio;
low liquidity ratios and a downward trend;
the presence of chronic overdue payables and receivables;
an increase to the dangerous limits of the share of borrowed capital in its total amount;
lack of working capital;
systematic increase in the duration of capital turnover;
excess stocks of raw materials and finished products;
use of new sources of financial resources on unfavorable terms;
adverse changes in the order book;
falling market value of the shares of the company;
reduced production capacity. The second group includes indicators
unfavorable values of which do not give reason to consider the current financial condition of the enterprise as critical, but signal the possibility of a sharp deterioration in the future if no effective measures are taken. These include:
excessive dependence of the enterprise on any one specific project, type of equipment, type of asset, raw materials market or sales;
loss of key counterparties;
underestimation of renewal of equipment and technology;
loss of experienced management staff;
forced downtime, irregular work;
ineffective long-term agreements;
lack of capital investment, etc ..
The method of analysis and evaluation of a limited number of indicators of the financial condition of enterprises (coefficient analysis).
This approach is widely used in the Republic of Belarus and complies with officially recognized methodological recommendations for identifying signs of insolvency of business entities. It should be noted that globally in the analysis and evaluation of the financial condition of the company the following indicators are used: liquidity; solvency (capital structure); financial sustainability (business activity); profitability.
Solvency ratios reflect the ratio of own and borrowed funds of the company, that is, characterize the degree of its financial independence from creditors
The coefficients of financial stability allow you to analyze how effectively the company uses its assets.
Profitability indicators are relative characteristics of financial results and are necessary in order to study how profitable the activity of an entity is.
Each country chooses its criteria when analyzing the state of organizations, based on available statistics, economic situation, etc. Often, these indicators are contained in legislative acts and have normative values.
Consider the implementation of this method in the Republic of Belarus. Thus, according to the Law “On Economic Insolvency (Bankruptcy)” dated 13.06.2012 No. 415-3, the grounds for filing a debtor’s application with the court in order to declare it bankrupt and apply corresponding procedures to it in the future, provided for by the legislation, is one of following factors:
insolvency becomes sustainable;
insolvency is sustainable
An organization is recognized as insolvent if both the first and second ratios simultaneously have values below the normative, depending on the main type of activity (industry sector). The basis for classifying an enterprise as an insolvency organization that acquires a stable nature is its inability to satisfy the claims of creditors during the four quarters preceding the preparation of the last balance sheet. An organization is considered to be stably insolvent when an excess of the standard value of the ratio of financial liabilities to assets by the date of the last balance sheet is added to the above-mentioned characteristic.