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Business Economics - Pokropivny SF

20.2. Methodical bases of determining the probability of bankruptcy of business entities

For successful management on the basis of market relations is becoming an essential assessment of the probability of bankruptcy of business entities and other activities. In Ukraine, where for decades dominated nonmarket system of management, excluding the official recognition of bankruptcy as an economic phenomenon, there is no generally accepted method of determining the likelihood of domestic bankruptcy of economic entities. In this regard, we have to use foreign methodological approaches, which are based on factor Divide predicting bankruptcy of enterprises and organizations.

The simplest is the two-factor model estimating the probability of bankruptcy of the enterprise (organization). It provides for payment of a special coefficient Z and has a formalized view:

Z = -0,3877 - 1,0736 ko.l + 0,579 q ps (20.1)

ko.l where - coefficient of overall liquidity;

q ps - the proportion of borrowed funds in the total value of balance sheet liabilities of the enterprise (organization).

In the two-factor model, the probability of bankruptcy of a business entity is a very small negative value for any coefficient Z and large at Z> 1,0.

A more reasonable and therefore a widespread practice is the five-factor model of Altman.

Professor at New York University, Edward Altman developed the algorithm for calculating the solvency index get the index name (model) Altman. This index allows a sufficient probability of business entities to share with those who work steadily, and on the potential bankrupts.

His model of E. Altman constructed based on a study of the financial condition and results of 66 companies, 22 by calculating financial ratios and selecting only the five most powerful for their model. These factors characterize with various parties (comprehensive) capital profitability and its structure. Altman Index «Z» is determined by the numerical formula

Z = 3,3 + 0,99 K1 K2 K3 = 0.6 + 1.4 + 1.2 K4 K5 (20.2)

where K1 - characterizes the profitability of capital (fixed and circulating), and is determined by dividing the sum of the profits to the value of assets (with a certain degree of conditionality can be called a measure of profitability);

K2 - reflects the profitability of a business entity and is calculated as the valuation of the total value of assets of the enterprise;

K3 - kapitalnosti shows the structure of the company; defined as the ratio of equity capital at market value assessment and debt capital at market value assessment and debt capital (the sum of short-term and long-term liabilities);

K4 - expresses the level of net pribylnostі production (activity) is calculated by dividing the volume of reinvested earnings (minimum reserve fund of social purpose and special-purpose financing, as well as retained earnings) in the total value of the firm's assets;

K5 - defines the structure of the capital on the specific weight of own funds; calculated as the ratio of its own working capital to total assets of a business entity;

3.3; 0.99; 0.6; 1.4; and 1.2 - regression coefficients characterizing the measure of effect on the index «Z».

To determine the «Z» probability of bankruptcy settlement index should be compared with the critical value given in Table. 20.1.

Table 20.1

The likelihood of bankruptcy of enterprises (organizations) determining INDEX E. Altman

With industry-specific and the other possible scale, the index values ​​of the interpretation.

In domestic practice management application E.Altmana model it is associated with certain difficulties. First, the regression coefficients k1 - k5 were calculated by the author based on the results of the companies operating in a very different market environment. Second, the scale of values of the index «Z» is not taken into account industry specific management. Third, Russian experts lack information when calculating the coefficient K3 is fueled by the lack of development of the securities market. Therefore, E. Altman model can be applied in domestic practice of management only if the important condition: the regression coefficients and the critical values of the index «Z» it is necessary to calculate for specific sectors (fields of activity) with acceptable criteria, reflecting the specific conditions of management of Ukrainian companies.

To estimate the probability of bankruptcy can be used and other integral factor models (Fox, 1972 .; Taffler, 1997 .; k - model, and others.).