DEVELOPMENT OF COMPARATIVE-QUANTITATIVE MEASURES OF FINANCIAL STABILITY FOR LATVIAN ENTERPRISES

Abstract

Financial stability has drawn serious attention of companies operating in the condition of economic recession. Discovery of new approaches in prediction of financial stability should foster improving the financial stability.

This article is the development of theoretical model of evaluation of company's financial stability, examined in “Selecting the right tool for evaluation of solvency: case from Latvia” (N. Lace, N. Koleda, 2008).

Bankruptcy predictions and solvency measurements have become important research topics after applying of financial ratio methodology in analysis by Beaver (1966) and Altman (1968). As the world’s economy has been facing several challenges during the past decades, more and more companies are addressing the problems of fighting insolvency. Within the current context of dynamic changes in business environment the theory and practice of financial management face a question of what the effective method of evaluation of company’s financial stability is and what theoretical and methodological awareness is necessary for minimizing the risk of bankruptcy of company of the 21 century.

The main points examined in this paper are 1) the methods of evaluation of financial stability and prediction of bankruptcy; 2) the assessment of methods; 3) new approach of combined evaluation of financial stability 3) evaluation of financial stability of Latvian companies based on combined approach.