Liquidity ratios as predictors of organizational decline: evidence of the Eastern Croatia

Blaženka Hadrović Zekić

Economy of eastern Croatia yesterday, today, tommorow, 2013, vol. 2, 44-56

Abstract: Problems in business are present long before bankruptcy procedure is initiated, whereas methods for bankruptcy prediction provide reliable results in a short term period – up to three years, which is most often too late for a company to be saved. Therefore company management boards and stakeholders strive to recognise latent business problems as early as they arise so that they could start business changes as soon as possible. The aim of this research is to analyse liquidity ratios as the factor of influence on assessment of business decline, that is, problems in business operations. Research methodology is based on descriptive and inferential statistical analysis of financial reports of the studied companies to warn about the influence. Empirical research of financial reports of large companies in Slavonia and Baranja in the period from 1999 to 2008 and statistical analysis of results led to the conclusion that only some of the analysed liquidity ratios are of key importance in warning about business decline. A decrease of the current liquidity within one year does not indicate that the company is in crisis, but it warns about problems in business that need to be acknowledged and eliminated to maintain successful performance.

Keywords: Liquidity ratios; organizational decline; organizational change; Eastern Croatia (search for similar items in EconPapers)
Date: 2013
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