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Valuation of Bankruptcy Risk for Lithuanian Companies

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Author(s): Alina Stundžienė | Vytautas Boguslauskas

Journal: Engineering Economics
ISSN 1392-2785

Volume: 4;
Start page: 29;
Date: 2006;
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Keywords: evaluation of bankruptcy risk | E. Altman model | classification method

ABSTRACT
This article is about the importance of valuation of companies’ bankruptcy risk and its methods. Bankruptcies of enterprises are one of the most popular economic appearances that cause a lot of negative effects for companies, employees, other associate firms and institutions, also for the state and society. The perspectives and succession of company’s performance is a concern not justof the company itself, but also of other associate subjects such as investors, shareholders, banks, customers, suppliers and other business partners. One of the most popular ways to measure bankruptcy risk this time is E. Altman method. But there are no researches and conclusions about the relevance of this method for Lithuanian companies. After the application of E. Altman method for 56 Lithuanian joint stock companies the result showed, that it produces meaning error. This method puts too many companies to high or very high bankruptcy risk classes. So a more accurate model for bankruptcy risk prediction is needed.It is important to evaluate as many characteristics of the company as it is possible in order to estimate real probability to crash. Company is a complicated object and it is characterized by a lot of various ratios. Besides, there are no concrete values of each ratio that would be received as good or bad. Each company has its strong and weak characteristics. That‘s why it is necessary tovaluate not a single ratio, but the system of ratios in order to get the right estimation of the company and its bankruptcy risk. So the methodology that would let join a lot of variables for this purpose is needed.
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