The potential of the equity working capital in the prediction of bankruptcy Cover Image

The potential of the equity working capital in the prediction of bankruptcy
The potential of the equity working capital in the prediction of bankruptcy

Author(s): Daniel BRINDESCU OLARIU
Subject(s): Economy, Economic policy, Economic development
Published by: Fundatia Română pentru Inteligenta Afacerii
Keywords: Bankruptcy Equity; working capital Risk; Financial ratio; Financial analysis; Financial statements;

Summary/Abstract: The current study evaluates the potential of the equity working capital in predicting corporate bankruptcy. The population subjected to the analysis included all companies form Timis County (largest Romanian County) with yearly sales of over 10000 lei. The interest for the equity working capital was based on the recommendations of the literature, as well as on the availability of information concerning its values to all stakeholders. The event on which the research was focused was represented by the manifestation of bankruptcy 2 years after the date of the financial statements of reference. All tests were performed over a paired sample of 1176 companies (largest paired sample used in Romania in financial ratios research). The methodology employed in evaluating the potential of the equity working capital was based on the general accuracy ensured by the ratio (64.5%) and the Area Under the ROC Curve (0.672). The results confirm the practical utility of the equity working capital in the prediction of bankruptcy.

  • Issue Year: 2014
  • Issue No: 31
  • Page Range: 25-32
  • Page Count: 8
  • Language: Romanian