A sign of bankruptcy is the inability of the organization to ensure compliance with the requirements of the creditors within three months from the date of occurrence of the timing of payments. After this period, the creditors have the right to appeal to the arbitration court on the recognition of the debtor bankrupt.
Methods of diagnostics of probability of bankruptcy based on the application:
the analysis of the extensive system of criteria and indicators;
a limited number of indicators;
integral indicators, calculated using: scoring models, multidimensional rating analysis, the multiplicative discriminant analysis.
There are indicators of possible financial difficulties and bankruptcy of the organization in the near future:
the presence of chronically overdue accounts payable and receivable;
recurring significant losses in the main activity, which is expressed in chronic recession, reducing sales volumes and chronic loss;
low values of the liquidity ratios and the declining trend;
increase to dangerous levels in the share of borrowed capital in the total amount;
deficit of own working capital;
a systematic increase in the length of turnover of capital;
the presence of excessive stocks of raw materials and finished products;
the use of new sources of financing on unfavorable terms;
adverse changes in the portfolio;
the fall in the market value of the shares of the organization;
the decrease in production capacity.
There are also indicators of adverse values do not give grounds to consider the current financial position of the organization as critical, but indicate the possibility of a sharp deterioration in the future when not taking effective measures:
the over-reliance of the organization on any one specific project, equipment type, asset class, market or raw material market;
the loss of key counterparties;
underestimation of equipment upgrading and technology updating;
the loss of experienced staff management;
downtime, spasmodic work;
ineffective long-term agreements;
insufficiency of capital investments.
For the diagnosis of insolvency of the business entities are often used round the more significant metrics:
the current ratio;
coefficient of security own circulating capital;
leverage ratio (the proportion of borrowed funds in total assets);
the share of overdue liabilities in total assets of the organization.