The risk of bankruptcy has always been an inalienablecomponent of any business activity in the market, extending not only to a person or firm that has suffered losses as a result of doing business, as well as to persons who have cooperated with this firm or entrepreneur, providing them with some form of funds.
Legislation of the Russian Federationbankruptcy is considered as an inability of an economic entity to pay mandatory payments, debt obligations to creditors, as well as to finance the current detail, since there is insufficient funds for this. The earlier the diagnosis of bankruptcy is carried out, the more the company has a chance to avoid it. Diagnosis of bankruptcy can be carried out by one of a variety of methods, and you can conduct it using several different methods, which will give a more accurate result. Each method allows you to identify trends in bankruptcy and implement an estimate of the probability of each of them.
Bankruptcy Diagnosis: Common Valuation Factors
There are a number of factors that indicatethe difficult situation of the enterprise, if they are identified and taken into account in a timely manner, this will allow not only to prevent possible risks, but also to forecast bankruptcy. Among these factors can be identified:
- Unstable profit;
- low rates of liquidity ratios;
- low profitability of products or services;
- a sharp drop in the value of the company's assets and securities;
- A significant percentage of the use of borrowed funds, which provokes a great importance of the effect of the financial leverage, which exceeds the level of economic profitability of assets;
- low rates of liquidity ratios;
- high indicators of general factors of commercial risk;
- reduced return on investment.
If all these indicators are identified, or some of themthem, then this already indicates a significant probability of bankruptcy, an accurate assessment of which can be carried out by comparing the business activities of an organization with the similar activities of other firms, individual entrepreneurs or organizations.
Diagnosis of bankruptcy: the main approaches
During the diagnosis and evaluation of the probabilitybankruptcy approaches are based on the analysis of a sufficiently extensive system of signs and criteria or on the use of a limited range of indicators, including integral ones. There is a conditional separation of a common set of characteristics that can indicate a probability of bankruptcy.
To the first group it is customary to include the signs that signal the probability of deterioration of the position of the company or the company in the future:
- low level of capital investments;
- Inefficient use of technical equipment and resources of the enterprise;
- Unsteady work and forced downtime;
- absolute dependence on a certain market, type of equipment or asset, etc.
The second group includes indicators that allow you to determine the probability of bankruptcy in the near future:
- availability of stocks of raw materials or products, significantly exceeding the norm;
- shortage of circulating assets of the firm and growth of the period of its turnover;
- Presence of outstanding monetary obligations to the founders of the company;
- chronic overdue debt to creditors or debtors and other indicators.
If the entity is unable to repay the debt obligations within three months, it acts as a determining indicator of the significant probability of bankruptcy.
A petition for bankruptcy in the judiciary may be submitted either by the management of the enterprise itself, or by authorized bodies or by creditors of the enterprise.