Forecasting bankruptcy in the wood industry

Abstract

The assessment of a company’s financial condition is an effective tool, which supports the management system. Nowadays a number of models are available, most often multi-branch ones, which are able to predict the financial situation of an enterprise. Models solely intended for just one line of business are a rarity. As far as the wood sector is concerned, no homogenous model suited to the sector has been created. The article aims to present the final stage of research dealing with predicting bankruptcy in the wood sector. The bankruptcy prediction model presented in this paper, called the model for forecasting bankruptcy of wood enterprises (FMWE), has been developed specifically for the wood sector. The process of model construction was presented and the correctness of forecasts built with the use of FMWE was verified. The predictions were based on 1-, 2- or 3-year periods. Furthermore, the effectiveness of the FMWE projections was compared to the 10 most popular bankruptcy prediction models used in Poland. It was observed that in comparison with other prediction models, FMWE predictions for this particular industry indicate greater credibility, up to 90%, for 1-year and 2-year predictions.

Corporate Bankruptcy and Insolvency Prediction Model

“…Subsequently, Barniv and Agarwal (2002) considered that profitability, working capital position, financial risk, and liquidity are the four key dimensions in establishing the financial profile of a company. Gavurova et al (2017) evaluated four models of bankruptcy prediction in the Slovak economy, in order to identify the optimal prediction model for it, finding that the use of the IN05 index (Neumaier & Neumaierová, 2004) is superior to the Ohlson (1980) and Altman models. Also, Boďa and Úradníček (2016), verified the applicability of the equation from the Altman model to the economic conditions in Slovakia, finding that the original wording and especially the revised one can be applied.…”

“…Sulub (2014) found that Altman's Z model for predicting the financial crisis is correct for multinational companies that failed at a predictive power of 70%, and for those that failed with a predictive power of 55%. Giacosa et al (2016) used the models: discriminatory analysis (Altman, 1983), Taffler (1983) and logit analysis (Ohlson, 1980) for companies in Italy, finding that re-estimated models have a higher efficiency in making bankruptcy prediction compared to original models. Peyman et al (2011) applied the Springate and Zmijewski models for bankruptcy forecasting, applying non-parametric binomial methods for data analysis, finding that there is a significant difference between them in terms of forecasting accuracy.…”

“…Peyman et al (2011) applied the Springate and Zmijewski models for bankruptcy forecasting, applying non-parametric binomial methods for data analysis, finding that there is a significant difference between them in terms of forecasting accuracy. Other researchers have also contributed to the original models by adding new variables and testing them in their economies for different sectors (Noga & Adamowicz, 2021;Salehi & Pour, 2016;Almamy et al, 2016;Ékes & Koloszár, 2014;Karas et al, 2013;Hwang et al;Ko et al, 2017Ruxanda et al, 2018) or using a combination of several different methods of bankruptcy prediction . Bernard et al (2007) considered social, financial and operational factors to classify companies and established a global model for performance evaluation.…”

“…In addition to the initial sample, two other samples were considered to be included in the analysis to determine the robustness of the bankruptcy risk predictability model. This test method was also applied by Noga and Adamowicz (2021). In this context, the first test sample comprises 25 companies in financial failure (defined similarly to the specifications for the companies in the initial sample), further marked with FC and 25 financially stable companies, marked with HC.…”

Predicting Insolvency of the Construction Companies in the Creditworthiness Assessment Process—Empirical Evidence from Poland

“…Platt and Platt (2002) conducted research for the US car industry. Interestingly also is that many authors took effort to estimate the bankruptcy model for less popular sectors like the wood industry (Noga and Adamowicz 2021), telecommunication sector (Busu 2015), and agricultural entities (Valaskova et al 2020). Štefko et al (2021) used graphic methods and the DEA for predicting bankruptcy risk based on Slovak heat-management companies.…”