Prosperity Prediction in Czech Manufacturing Industries

Research background: Effective monitoring of financial health is essential in the financial management of enterprises. Early studies to predict corporate bankruptcy were published at the beginning of the last century. The prediction models were developed with a significant delay even among the Visegrad group countries. Purpose of the article: The primary aim of this study is to create a model for predicting bankruptcy based on the financial information of 20,693 enterprises of all sectors that operated in the Visegrad group countries during the post-pandemic period (2020?2021) and identify significant predictors of bankruptcy. To reduce potential losses to shareholders, investors, and business partners brought on by the financial distress of enterprises, it is possible to use multiple discriminant analysis to build individual prediction models for each Visegrad group country and a complex model for the entire Visegrad group. Methods: A bankruptcy prediction model is developed using multiple discriminant analysis. Based on this model, prosperity is assessed using selected corporate financial indicators, which are assigned weights such that the difference between the average value calculated in the group of prosperous and non-prosperous enterprises is as large as possible. Findings & value added: The created models based on 6?14 financial indicators were developed using different predictor combinations and coefficients. For all Visegrad group countries, the best variable with the best discriminating power was the total indebtedness ratio, which was included in each developed model. These findings can be used also in other Central European countries where the economic development is similar to the analyzed countries. However, sufficient discriminant ability is required for the model to be used in practice, especially in the post-pandemic period, when the financial health and stability of enterprises is threatened by macroeconomic development and the performance and prediction ability of current bankruptcy prediction models may have decreased. Based on the results, the developed models have an overall discriminant ability greater than 88%, which may be relevant for academicians to conduct further empirical studies in this field.

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The actual predictive power of bankruptcy models in terms of time use

Kuběnka,

Honková,

Sejkora

et al. 2024

International Scientific Conference „Business and Management“

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The quality of bankruptcy models is habitually based on how well they can predict the financial health of a business a year in advance. However, corporate accounting data is publicly available usually with one year delay. So, the research question is not how accurate the prediction is one year in advance, but two years in advance. Therefore, an analysis of 7 models was performed to compare the change in their accuracy depending on time. The results showed a decline in prediction accuracy over time. The found total success rate of prediction is from 67.38% to 80.64%, which confirms that some of these models are also usable for two-year prediction of the financial health of the company.

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Prosperity Prediction in Czech Manufacturing Industries

Cited by 4 publications

References 26 publications

Implementation of standards into predictors of financial stability

Implementation of standards into predictors of financial stability

Bankruptcy prediction in the post-pandemic period: A case study of Visegrad Group countries

The actual predictive power of bankruptcy models in terms of time use

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