The Monitoring of Financial Insolvency and Probability of Bankruptcy

Abstract

In countries with unstable economies and changing political systems, as well as adverse climatic conditions, the likelihood of bankruptcy is higher. Economic and political instability is now observed in Ukraine, where, due to hostilities, part of the business was forced to emigrate to safer places of doing business, and other part stopped operating. The increased pace of inflation, the unstable exchange rate of the national currency, the decline in business activity, the outflow of labor and investments from the country, including those related to scientific and technical developments, had a negative impact on the business climate in Ukraine. At the macroeconomic level, bankruptcy can be considered as a process of cleaning the economy from inefficient enterprises that undermine bona fide relationships with other business entities, and, as a result, maintaining the potential and attractiveness of the market. Bankruptcy as an economic phenomenon gives rise to a number of problems, including: reduced demand for producers’ products; decrease in production volumes; growth of debt to suppliers, the State budget, banks and other counterparties; delays in the payment of wages to employees; unpredictable change in the economic environment in general. That is why financial stability and sustainability of enterprises requires increased attention on the part of management. Diagnosis of bankruptcy of an enterprise allows timely identifying its insolvency, unprofitability, financial dependence and low business activity using a number of indicators given in classical models developed by economists and other specialists. However, due to the large number of developed models, there is a need to determine the most optimal for domestic enterprises. Both foreign and domestic scholars have developed methods and models to effectively assess the risks of bankruptcy. In this publication, the models of Springate, Altman and Tereshchenko are used on the example of the enterprise of «LCF SVITOCH LLC» and it is determined that it is financially sustainable, but the indicators of 2020 in all models are worse than the same indicators in 2018. Nowadays there are many methods (with their advantages and disadvantages) to assess the probability of bankruptcy. For their effective application in practice, it is important to choose the most optimal one, taking into account regional peculiarities.

Keywords

• bankruptcy
• financial insolvency
• springate model
• altman model
• tereshchenko model