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KEY FINANCIAL RATIOS TO ASSESS THE RISK OF BANKRUPTCY BASED ON SELECTED PUBLICLY TRADED COMPANIES
Abstract
In recent years there has been a dramatic increase in the number of reported bankruptcy of enterprises both in the country and all over the world. Bankruptcy is observed not only among companies entering the market, but more and more frequently also among the large ones. The lack of ability to predict bankruptcy is a problem of investors, but also affects the micro and macro-economic environment of declining businesses. The aim of this article is to present and analyse the theoretical and practical aspects of assessing the financial condition and early warning systems against the risk of bankruptcy. For this purpose the methods and tools of financial analysis have been employed. The main research goal of this article is to examine the prognostic value of financial indicators such as: the current liquidity ratio, quick ratio, debt ratio, receivables collection period, inventory turnover, EBIT and the value of sales revenues for investigating the risk of borrower's bankruptcy. The basic research hypothesis is: key financial ratios have a very high prognostic value when examining the risk of bankruptcy of companies listed on the Stock Exchange. Verification of the above research hypothesis is the main objective of this article.
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