Bankruptcy risk – central point in the financial – accounting diagnosis

Gheorghe Holt
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Gheorghe Holt: Constatin Brancusi University of Targu Jiu, Romania

Annals - Economy Series, 2009, vol. 3, 321-332

Abstract: In a competitional economy, the existence and the viability of an affair are tied up by risk in the measure in how the present and the futures results are unther the influence of unespected events. This explain and justify the interes of the financial analists in elaborating an valuation and estimate diagnosis of this inerent phenomen. The most important utilization of the bankruptcy point analysis refers to the business operating and financial risks evaluation. For this reason it is necessarly to approach the problems involving the estimation mode of the risks degree in order to discover the facts that generate them. The operating risk is evaluated through the degree operating leverage, calculated as the sensitivity of operating profit to the sales variability. It is demonstrated that the level of this risk is determined by the expenses structure in fixed costs and variable costs. It is greater when the fixed costs weight is more important. Secondly, the financial risk is evaluated through the financial coefficient leverage, calculated as the sensitivity of net profit to the operating profit variability. The level of risk is determined by the financial expenses. It is greater when the business is financed by debts and smaller when the equity is more important.

Keywords: bankruptcy risk; production; risk; diagnosis (search for similar items in EconPapers)
Date: 2009
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