A Model For Early Warning Analysis Of Financial Crisis

The financial crisis early-warning analysis, through the analysis of enterprise financial statements and related business data, makes use of the data management mode and financial data to inform the business operators and other stakeholders in advance of the dangerous situation that the enterprise has already faced, and analyzes the possible causes for the financial crisis of the enterprise.

Hidden problems in the operation system, so as to advance the financial analysis system of preventive measures.

The models of financial crisis early-warning analysis usually include single variable early warning analysis and multivariable early warning analysis.

It refers to the use of a single.

To predict the possible financial crisis.

When several financial ratios in the enterprise model tend to deteriorate, it is usually a precursor to financial crisis.

The root of potential crisis, that is, the quality of management performance is ultimately reflected in the financial results; and the quality or reliability of the generating process of financial results directly affects the form and economic consequences of the crisis; the continuous guarantee of the operation of financial results is mainly reflected in the operational efficiency.

Predicting financial crisis

There are mainly debt guarantee rates (total cash / flow liabilities), asset return (net income / total assets), asset liability ratio and so on.

The limitations of applying the above ratios to early warning analysis of enterprise financial crisis are: first, although we can distinguish whether the enterprise is in financial crisis, we can not judge whether the enterprise is likely to go bankrupt and predict when it will go bankrupt; secondly, the conclusion of univariate ratio analysis may be affected by inflation; thirdly, when financial difficulties arise, management will often use the method of whitewashing financial statements to cover up the real financial situation, so that the early warning of financial crisis will be lost.

Because of the single financial indicators, it is difficult to reveal the specific degree of impact and timing of the crisis from the perspective of the whole enterprise.

Therefore, it is necessary to combine all the main indicators to check the instability of the financial situation of enterprises more effectively and avoid or delay the crisis sooner.

From the perspective of the whole enterprise, the multivariable early warning analysis uses various financial ratios to check whether the financial situation is unstable or not, and then predicts whether there is a financial crisis.

One of the most representative is the Z value model created by Professor Alterman of York University. It is a method to predict the financial crisis that may happen in enterprises by using the score of the five financial ratios by weighting aggregation.

This method provides a new way of thinking for people to conduct early warning analysis of enterprise financial crisis.

However, due to the different economic environment of each country, its analytical models and results will be different.