ASSESSMENT OF THE PRACTICAL APPLICATION OF CORPORATE BANKRUPTCY PREDICTION MODELS

Deimena Kiyak, Daiva Labanauskaitė

Abstract


In order to accurately and objectively evaluate the performance of the company and to determine the factors influencing the company's financial condition and results of operations, it is necessary to use an integrated methodology of bankruptcy forecasting. The aim of the article is to evaluate the validity of conceptual economic principles in bankruptcy prediction models and evaluate the potential practical application of these models. To achieve the aim of the article and using comparative literature analysis and descriptive approach the summarize of corporate bankruptcy prediction models is done in the theoretical aspects, empirically tested the appropriateness of their application in real situations, assessed the dynamics of corporate bankruptcies and trends in Lithuania in 2006-2010. In order to clarify the reliability of bankruptcy prediction models as well as using current bankruptcy tendencies of Lithuanian companies the probability of bankruptcy in companies is evaluated, which usually meets at least one failing business signs: 1. the company is attributed to small and medium seized business category; 2 .According to the classification of economic activities, company is attributed to wholesale or retail trade, construction or manufacturing industry; 3. The company operates in metropolitan of Lithuania. The probability of bankruptcy is evaluated in five currently operating companies and two already bankrupted companies using Altman, Springate, Zavgren and Chesser models. After the verification of availability and application of bankruptcy prediction models in seven companies, findings show that linear discrimination model reflects the most accurate financial condition of the company. Whereas the results of logistic analysis model do not reflect the actual performance of the the company and there is no purpose to use it for bankruptcy forecasting.

DOI: http://dx.doi.org/10.5755/j01.em.17.3.2106


Keywords


corporate bankruptcy; corporate bankruptcy prediction models

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