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Methods of predicting business failure

Author(s): Paweł Kopczyński
Subject(s): Economy, Business Economy / Management, Accounting - Business Administration
Published by: Wydawnictwo Uniwersytetu Łódzkiego
Keywords: models used to predict corporate financial distress; listed companies; corporate failure; bankruptcy; models of multiple linear discriminant analysis (MLDA); financial analysis; financial ratios
Summary/Abstract: Continuous access to information is essential for the effective management of modern enterprises. Information is essential for making decisions, monitoring the company's situation and analyzing the financial standing of its stakeholders. Information on the risk of bankruptcy is of particular importance for managers. A company that wants to stay viable should analyze its financial situation in order to identify emerging problems and solve them as quickly as possible. Therefore, any risk of bankruptcy should be immediately identified in order to take effective preventive measures. Knowledge of bankruptcy forecasting methods facilitates company management and allows investors to avoid losses associated with reckless investment in shares of financially distressed companies. This publication is devoted to the issue of bankruptcy. It shows the origin and development of bankruptcy law and explains the meaning of various terms such as bankruptcy, failure and other related concepts. Corporate failure prediction requires a constant supply of information, which is why the importance and role of enterprise information systems is also discussed. Their effective functioning will facilitate the identification of bankruptcy risk (which will enable restructuring actions to be taken), but will not eliminate it completely. The survival of the company and its market success depends on the effectiveness of the company's management reorganization processes. Crises affecting the business may force a reorganization that managers often do not want to undertake. Deep changes introduced in a company can have far reaching consequences which can often result in the company’s market success or failure, depending on how such changes are carried out. This publication provides a detailed discussion of financial ratios that can be used to predict corporate failure. It shows the development of modern bankruptcy forecasting methods, such as: multiple linear discriminant analysis (MLDA), as well as their effectiveness. Forecasting models that can be used in business practice are presented. The model of multiple linear discriminant analysis developed by the author, who hopes that it will be used by entrepreneurs, is also shown. The utilization of such methods to assess the risk of bankruptcy does not require advanced skills from the user. It comes down to a few simple calculations, and can contribute to a significant improvement in the company management process, helping to further streamline the company’s management process.

  • E-ISBN-13: 978-83-8331-232-3
  • Print-ISBN-13: 978-83-8331-231-6
  • Page Count: 174
  • Publication Year: 2022
  • Language: Polish