INSOLVENCY OF AN ENTERPRISE AND METHODS OF FINANCIAL ANALYSIS FOR PREDICTING IT

Jonas Mackevicius,Ruta Sneidere

doi:10.15388/ekon.2010.0.994

Abstract

The purpose of this article is to draw attention to the topical problem of entity-level insolvency and the insolvency prediction models. Definitions, symptoms, causes and factors affecting insolvency, suggested by various authors, are reviewed. The impact of enterprise insolvency on a country’s economic growth is weighed up. Finally, the article presents the authors’ research work in the field of testing various enterprise insolvency forecast models and a system of insolvency prediction methods. Recommendations of possible solutions, based on the conclusion drawn from the research, are put forward.

Highlights

Since Latvia became a EU member state, its business environment and the related factors changed substantially
The problems of insolvency and bankruptcy forecast were investigated by many renown scientists: A.E
These scientists developed models and bankruptcy forecast methods, mostly on the basis of information drawn from financial reports prepared in accordance with national regulations and accounting standards, a direct application of these methods in the analysis of financial reports of Latvian enterprises should be done with caution

Summary

Introduction

Since Latvia became a EU member state, its business environment and the related factors changed substantially. One of the preconditions for a successful entrepreneurial activity is the solvency of an enterprise and the availability of financial resources. The problems of insolvency and bankruptcy forecast were investigated by many renown scientists: A.E. Altman, L.A. Bernstein, J.J. Wild (USA), R.Taffler, H. Tichow (UK), D.A. Botheras, J.G. Fulmer, G.L.V. Springate (Canada), M. These scientists developed models and bankruptcy forecast methods, mostly on the basis of information drawn from financial reports prepared in accordance with national regulations and accounting standards, a direct application of these methods in the analysis of financial reports of Latvian enterprises should be done with caution

Objectives

Methods

Findings

Conclusion