Financial and Bankruptcy Risk of Economic Entities. Analysis Models

Abstract

The paper purpose is to analyze the financial and bankruptcy risk that economic entities carry. We considered it appropriate to select some companies from the oil and gas industry, due to the challenges that this industry has gone through in recent years, from the point of view of technological changes, the volatility of production and the price of oil and gas. All these elements brought a significant risk to the companies in the industry, bringing challenges to their management. Moreover, to all these aspects related to the companies are added the geopolitical tensions that have often affected the medium- and long-term plans of the companies, as well as determine legislative changes. We used an econometric model built on the basis of data series organized in panel form, this being the most straightforward and most efficient way to analyze the risk and profitability of companies in a certain sector, when different companies are considered. We built econometric models to explain which are influencing factors on companies' profitability, and among the most important variables considered were those that measured performance, i.e., return on equity (ROE) and return on assets (ROA). Accordingly, the bankruptcy risk, credit risk and liquidity risk of each company among those taken into analysis was measured. By tracking the impact of these risks, we obtained results on the manner in which they influence financial performance.

Keywords

• risk of bankruptcy
• financial risk
• return on equity
• return on assets