The Success of Business Failure Prediction Using Financial Creditworthy Models

Abstract

Financial creditworthy models are popular for their simplicity and fast applications. Above all, quantitative evaluation of financial health guarantees an unbiased assessment of company. On the other hand, these models do not take into account the soft factors. Probably, the most famous Czech financial models known as creditworthy are Credibility Index, Rudolf Doucha´s Balance analysis, and Kralicek´s Q-test. They were created for the purpose of assessing the creditworthiness usually without using statistical methods. Can they be used for prediction of business failure despite this drawback? What is their success rate? Which of these classic financial models achieves the highest accuracy? To find answers a dataset of financial statements of 92 companies in manufacturing industry was analysed. These companies went bankrupt between 2010-2014.