Luris O. A., PhD Chernyshova L. V.

Odessa National Economic University, Ukraine

PRACTICAL ASPECTS OF THE USE OF THE MODELS OF BANKRUPTCY PROBABILITY FORECASTING AND DETERMINING

 

As a result of the global economic crisis, a large number of Ukrainian enterprises have turned out on the verge of bankruptcy. First of all, it was caused by the fact that the specific weight of enterprises did not evaluate the probability of occurrence of such a risk and, thus, the enterprises were not able to respond to the situation that has arisen. Therefore, there is no doubt that every risk that has the right to exist for the enterprise should be considered; and the consequences of its influence on the financial condition of the enterprise should be evaluated; and immediate measures to respond to the threat as soon as possible should be developed.

Thus, by using the model of determining the probability of bankruptcy, an enterprise has an ability to protect its activity from various kinds of financial risks. It should not be forgotten that these models should be adjusted to the local conditions of enterprises.

The analysis of researches and publications of recent years. Problems of bankruptcy are beingstudied by a lot of scientists, academics and economists, including: O. Bazilinska [2], B.Grabovetsky [5], S. Ivaniuta [6], O. Podolska [9], G. Savitskaya [11], N. Tarasenko [12],A.Cherep [13], N. Shmorgun [14] and others.

The goal of this article is to conduct a comparative analysis and evaluation of the methods forecasting and determining the probability of bankruptcy using the example of LTD ARCELOMMITAL PACKAGING UKRAINE.

Analyzing the current state of Ukraine economy, it should be noted that the results of the financial crisis, which began in 2008, still influence today's activity of national enterprises. Unfortunately, nowadays there are a huge number of businesses in a state of bankruptcy in Ukraine. The domestic methodology for the assessment of crisis state does not conform to the modern requirements of enterprises but foreign experience is not completely adapted to the Ukrainian laws and fundamental provisions of accounting and auditing in a full measure. This leads to the need for developing the national model of analyzing the enterprise's propensity to bankruptcy, which takes into account the sectoral specificity, the stages of crisis development, current financial results, and gives an accurate and objective assessment of the crisis, based on the calculation of key indicators and targets.

The wide range of issues, related to detecting a crisis state ofenterprises (DCSE), was investigated by both domestic and foreign scientists and economists. The questions of essence, different methods of organization and process diagnostics are examined particularly in such works as A. Altman, L. Lihonenko, R.Lisa, A. Tereshchenko, Y. Fomin and others. However, despite the significant number of papers and recommendations regarding the nature, objectives and methods of diagnosis of the crisis, a lot of questions remain insufficiently clarified and require further research, adaptation to local conditions of development.

Analysis of the literature and current perspectives on the concept of the diagnostics of the enterprise's crisis state demonstrates that today there is no clear approach to understanding its essence. Considering DCSE authors put different meanings and essence depending on the nature and objectives, subjects, objects and methods of analysis. The views of some domestic and foreign authors on the concept DCSE are analyzed in Table 1.

 

Table 1. Analysis of approaches to the definition Detecting a Crisis State of Enterprise

Author

Definition of the concept

Keywords

L. Lihonenko [8]

Diagnostics of the problems which appeared in the operation process of the enterprise and can lead to the negative consequences in its functioning.

Analysis of the problems in the activity of enterprise, which can lead to the negative consequences

O. Andrushko,
M. Horbachevska
[1]

The system of retrospective, operational and perspective target analysis which is aimed at identifying the signs of enterprise crisis, its bankruptcy threat assessment and opportunities to overcome the crisis.

The system of retrospective, operational and perspective target analysis which is aimed at identifying the signs of enterprise crisis, its bankruptcy threat assessment and opportunities to overcome the crisis

. Blank [3]

The system of a target financial analysis which is aimed at identifying crisis state of enterprise that creates the threat of its bankruptcy.

Target financial analysis as the basis for identifying crisis state of enterprise

L. Kovalenko,
L.
Remnova [7]

There is the determination of the presence or the absence of a crisis and the identification of problems and suggestion of acceptable versions of their solution.

Identification of the crisis state and developing the concrete proposals to overcome the crisis problems


A. Azriliyan [4]

The research which is focused on determination of the goals of the enterprise operation, the methods which can help to achieve these goals and identify shortcomings

Research of the enterprise goals

 

Despite the fact, that the models of forecasting the probability of bankruptcy were developed by different western economists, we consider it to be appropriate to conduct a comprehensive research of the models to better assess their effectiveness.

The first model is a five-factor model which was created by E. Altman (Table 2).

 

Table 2. The estimated probability of bankruptcy of LTD ARCELOMMITAL PACKAGING UKRAINE by E. Altman five-factor model

Indexes

2013

2014

Deviation in 2014 compared

to 2013 (+ / )

X1 = working capital / asset balance summary

-0,876

-2,459

-1,583

X2 = retained profits (loss) / asset balance summary

-3,153

-5,437

-3,867

X3 = pre-tax profit (loss) / asset balance summary

-5,572

-7,145

-1,573

X4 = equity capital / long-term and current liabilities

-7,542

-8,234

-0,692

5 = = sales revenue / asset balance summary

1,806

2,415

+0,61

Z = 0,7171+0,8472+3,1073+0,4204+0,9955

-20,185

-33,938

-13,753

 

As a result of calculation Z figure for a particular enterprise we can make a conclusion:

- If Z <1,81 the probability of bankruptcy is from 80 to 100%;

If 2,77<= Z <1,81 the average probability of a crash is from 35 to 50%;

If 2,99<Z <2,77 the probability of bankruptcy is not large from 15 to 20%;

If Z <= 2,99 the situation in the company is stable, the risk of insolvency in the next two years is extremely small.

Economic and mathematical models of E. Altman are not the only ones that are based on discriminant analysis. In foreign countries other models can also be used (Table 3).

 

Table 3. The estimated probability of bankruptcy of

LTD ARCELOMMITAL PACKAGING UKRAINE by L. Sprinheyt

Indexes

2013

2014

Deviation in 2014 compared

to 2013 (+ / )

1 = working capital/ asset balance summary

0,781

0,788

0,007

2 = pre-tax profit (loss) / asset balance summary

-0,135

-1,572

-1,43

3 = pre-tax profit (loss) / current liabilities

-0,081

-2,057

-1,976

4 = sales revenue / asset balance summary

1,806

2,415

-0,609

Z =1,03 + 3,07 + 0,66 + 0,4D

-1,462

-4,37

-2,908

 

According to L. V. Sprinheyt if Z-figure is< 0,862, the enterprise is considered to be potentially bankrupt. If Z is > 0,862, then the company can be considered to be functioning.

Based on the data (Table 3) and the calculations, we can conclude that the model L. Sprinheyt for the previous year is Z = -1,462. This means that the studied company can be considered to be a potential bankrupt.

During the reporting period, this Z-figure was even worse Z = -4, 37, it also suggests that the company is not viable.

It is also possible to calculate financial results using British scientist Robert Fox. This model was invented by scientist in 1972.

 

Table 4. The estimated probability of bankruptcy

LTD ARCELOMMITAL PACKAGING UKRAINE by R. Lis

Indexes

2013

2014

Deviation in 2014 compared

to 2013 (+ / )

X1 = working capital / asset balance summary

0,781

0,788

0,007

2 = operating activity profit (loss) / asset balance summary

-0,064

-1,444

-1,38

3 = retained profit (loss) / asset balance summary

-0,694

-2,284

-1,59

4 = equity capital / long-term and current liabilities

-0,397

-0,704

-0,307

Z = 0,0631+0,0922+0,0573+0,0014

0,004

-0,214

-0,218

 

Using the R. Lis model we can see the at if Z-figure is<0,037, the probability of bankruptcy risk will be high. If Z> 0,037, the probability of the risk of bankruptcy is low. On this basis, and the table. 3,5, it can be concluded that the enterprise risk probability of bankruptcy for the previous year will be low and for the reporting is high.

After practical calculations of the possibility of bankruptcy analysed on the basis of three models (Altman five-factor model, the Sprinheyt model, the Lis model) it can be concluded that not all the models of estimated probability of bankruptcy can be relied on. Most of these models are designed for conditions of foreign countries enterprises and for countries where there is more stable economic situation. But even those which have been developed by domestic scientists may also be not correct.

Therefore, the same enterprise which is analysed by the results of different models can be defined as a bankrupt, and as an enterprise which has a very good financial position.

Therefore, the economists and scientists try to use such a model which would take into account all the factors and these specific conditions of the analysed company, or at least makes the correction of figure so existing models, taking into account the specificity of the activity and the industry in which the company operates.

 

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