How to predict a crisis

Use a systematic approach for making a forecast of the crisis development of an enterprise. Such a qualitative analysis implies a comprehensive identification of the characteristics of economic activity, indicating a tendency to bankruptcy. The presence of a number of indicators can be the basis for an expert opinion on an unfavorable course of development.
Make a list of critical indicators to predict the probable bankruptcy of the enterprise. A convenient two-tier system of characteristics can be taken as a basis, based on the recommendations of the Committee on the Generalization of the Practice of Auditing (United Kingdom).
In the first group, include criteria, the dynamics of which in the foreseeable future may indicate significant financial difficulties. First of all, it is:
- recurring losses in production activities;
- high level of overdue payables;
- low values of liquidity ratios;
- chronic lack of working capital;
- regular failure to fulfill obligations to shareholders, investors and creditors;
- deterioration of relations with banking institutions serving the enterprise.
Pay attention to the inclusion in the practice of the enterprise of using new sources of financing, and on unfavorable conditions. To predict a crisis, it is also important to use equipment with a long expired service life in the main production process. A decrease in the portfolio of orders, including the loss of long-term contracts, also indirectly indicates the approach of an unfavorable outcome.
In the second group of benchmarks, indicating the pre-crisis state of the enterprise, include the loss of key management personnel; insufficient diversification of the company's activities, which is expressed in the dependence of the results on one type of equipment or type of assets.
Keep under control such qualitative parameters as participation of the company in court proceedings with a deliberately unfavorable or unpredictable outcome; underestimation of technological renewal of the enterprise; Ineffective long-term contracts and agreements.
Conduct a qualitative expert assessment of the above criteria. For this purpose, it is possible to involve both specialists of different profiles within the company and independent consultants, including audit firms. The final assessment of the potential state of the enterprise as a pre-crisis one is made by the governing body, based on a comprehensive and comprehensive assessment of the parameters made by specialists.