Abstract
Research background:Predicting financial health of a company is in this global world necessary for each business entity, especially for the international ones, as it´s very important to know financial stability. Forecasting business failure is a worldwide known term, in a global notion, and there is a lot of prediction models constructed to compute financial health of a company and, by that, state whether a company inclines to financial boom or bankruptcy. In the current global world of uncertainty and continuous change, it is in each business’s interest to improve its performance. Businesses have to adapt to changing market conditions and keep moving to maintain their, either local or global, market position. In the past, entities preferred to increase primary accounting profit forms. The global modern goal of enterprises, value creation, is achieved through the concept of economic profit.Purpose of the article:The aim of this article was to find out the connection between two very important terms for the global economy, namely prediction models and economic profit.Methods:We focused on the research of both areas and looked for a common connection through how often different forms of profit, and especially the form of economic profit, are used in individual prediction models among the examined sample.Findings & Value added: The output of the whole article is the finding the division of the use of economic and accounting profit in the sample of models and the importance of economic profit for mathematical constructions of prediction models.
Highlights
In today's world of uncertainty and continuous change, it is in the interest of every business to increase its performance
An early warning system is a system that, based on symptoms, can identify changes in time within the company and in the company environment, where there may be danger [11]. Predictive models make it possible to identify the company's current position in the market environment based on the evaluation of selected financial indicators, and even to estimate its position in the given environment in the near future [12]
Financial prediction models are used to diagnose and predict a company's financial situation, but they can be used to evaluate the results of its economic activities within a group of competing companies, or even within the industry [17, 18, 19]
Summary
In today's world of uncertainty and continuous change, it is in the interest of every business to increase its performance. The term "prediction of a company's financial health" is well known in the world, but the intensity of how different countries deal with this issue is uneven. Business entities in our country forecast their financial stability only minimalistically, mainly due to the fact that for the conditions of the Slovak market a general prediction model has not yet been fully applicable to any entity, regardless of the sector in which they operate [4]. The professional literature names the issue of failure of business entities in various terms: ex-ante financial analysis method, bankruptcy prediction, default prediction, failure forecasting, early warning systems, financial distress forecasting, credit risk assessment, etc. Regardless of the diversity of individual names, all methods have a common goal - to determine in good time whether a business entity tends to go bankrupt or financial development. Based on financial analyzes and financial health predictions, it is possible to take corrective measures well in advance, mitigating or eliminating any bankruptcy risk [5]
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