The Liquidity and Indebtness Indicators in Evaluating Bankruptcy Risk Assessment and Insolvency Risk

Abstract

In a world dominated by continuous growth, the cash and cash equivalents represents one of the most important criteria in establishing the business success. In order to understand the importance of the cash and cash equivalents in the accounting principles (especially in the continuity activity principle), I performed a statistical evaluation of the companies listed on Bucharest Stock Exchange in order to determine the effect of the liquidity and indebtness indicators in the day-by-day activity of the most important romanian entities. This set of indicators shows the ability of companies to meet their short-term debts, and their importance is given by the possibility of covering a continuous flow of goods and services necessary for the pecuniary activity. A low level of liquidity is the first signal of a downturn in the near future and the generation of financial problems that can later lead to the declaration of insolvency.

Keywords

• insolvency procedure
• fraud risk
• indebtness
• accounting principles
• bankruptcy