Applying forecast reporting to assess the probability of financial insolvency (bankruptcy)

Abstract

Subject. During the pandemic, contacts between many organisations and their business partners were disrupted: their sales volumes and other sources of financing decreased and non-payments became more frequent. These reasons may result in an increased risk of financial insolvency for economic entities and may lead to bankruptcy. In this regard, financial forecasting is a way to avoid negative consequences.Purpose. The development of a universal analytical tool that allows predicting the probability of financial insolvency (bankruptcy) which has been tested within the PROTEK group of companies. Methods. The research results were obtained using analysis, synthesis, analogy, historical and logical approaches, classification, etc. The assessment of the financial insolvency (bankruptcy) risks has been based on several Russian and foreign bankruptcy methods which give contradictory probability estimates for studied organisations. In this regard, an attempt was made to predict the financial stability of an economic entity. Results. The authors propose to make a modified forecast report based on the balance sheet and the financial performance statement which provides in a single form the calculation of absolute and relative indicators of financial stability and solvency. At the same time, these data in combination with the G. G. Kadykov and A. S. Saifulin’s method can be used to assess the probability of bankruptcy. Conclusions. The proposed version of the forecast report allows obtaining a real-time forecast of the probability of bankruptcy and thereby taking timely measures to prevent the deterioration of the financial stability of the organisation.