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Signals Approach for Assessment and Prediction of Financial Stability of Russian Businesses

Author

Listed:
  • D. I. Pekhalskiy

    (Institute of Economic Forecasting, Russian Academy of Sciences, Center for Macroeconomic Analysis and Short-Term Forecasting)

  • F. I. Minichev

    (Institute of Economic Forecasting, Russian Academy of Sciences, Center for Macroeconomic Analysis and Short-Term Forecasting)

Abstract

The article presents an assessment of financial stability of Russian industrial companies based on financial ratios calculated on the data from their accounting statements. The assessment uses a modified methodology of the signals approach, originally designed for early warning of currency crises. Based on the data about operating and bankrupt companies, thresholds crossing which increases the likelihood of bankruptcy are calculated for six financial ratios. The consolidated leading indicator of bankruptcy calculated basing on these thresholds correctly predicts bankruptcies in 91.5% cases and the absence of bankruptcies in 93.7% cases, in 2023.

Suggested Citation

  • D. I. Pekhalskiy & F. I. Minichev, 2024. "Signals Approach for Assessment and Prediction of Financial Stability of Russian Businesses," Studies on Russian Economic Development, Springer, vol. 35(5), pages 753-762, October.
    • Handle: RePEc:spr:sorede:v:35:y:2024:i:5:d:10.1134_s1075700724700291
    DOI: 10.1134/S1075700724700291
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    References listed on IDEAS

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    1. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
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    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    4. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure - Reply," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 123-127.
    5. Gentry, Ja & Newbold, P & Whitford, Dt, 1985. "Classifying Bankrupt Firms With Funds Flow Components," Journal of Accounting Research, Wiley Blackwell, vol. 23(1), pages 146-160.
    6. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 71-111.
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