The Journal of Accounting and Management, Vol 4, No 2 (2014)
Estimating SME’s risk of bankruptcy using stochastic methods: Romanian Development Regions
Abstract
Nowadays, Romania has a functional market economy. Retrospective financial analysis is used to increase theprofitability and value of an economic entity searching for sources of capital and an efficient allocation. This analysisrequires certain financial methods and techniques to assess firm’s financial performance at a given moment. Economic theoryhas always been interested in developing methods to predict the risk of bankruptcy. One of the methods commonly used incurrent financial analysis is to determine the areas where the risk of bankruptcy is higher using the Score function. This paperpresents the theory of the Score function method for financial analysis of an economic entity and then applies it for SMEs inRomanian development regions. The bankruptcy risk for some SMEs is approximated and the strengths and weaknesses offinancial management in order to design new strategies are identified. Changes induced by the current economic and financialcrisis may involve, when the probability is a priori, an exchange of the bankruptcy rate. The techniques presented and appliedin this paper, allowed us, for each considered region, to obtain a general picture of the economic and financial situation ofSMEs and allowed for a global diagnosis and a synthesis of their economic and financial situation.
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