Evaluation of the functionality of bankruptcy models in mining companies

Abstract

Mining companies are an important part of the national industry of the Czech Republic. Since mining companies are important for the industry, it is necessary to predict their economic development. Moreover, forecasting the economic development of an enterprise in terms of the risk of bankruptcy is an important activity for the financial management of any enterprise. One of the ways to predict economic development and assess the risk of possible bankruptcy is to use bankruptcy models. The aim of this paper is to determine the most appropriate model for predicting the bankruptcy risk of a mining company. The subject of the article is to identify the most suitable bankruptcy models applicable for bankruptcy risk prediction in Czech conditions of mining enterprises and to verify their functionality on real data of mining enterprises. On the basis of a search of expert sources and comparative analysis, it was found that the most suitable models for predicting the development of the enterprise in terms of bankruptcy risk are modified versions of traditional bankruptcy models. The analysis showed that the bankruptcy models are the IN05 Index, Altman's analysis for Czech companies and the modified Taffler's index. The authors' team conducted a thorough analysis during which they verified the functionality of the selected bankruptcy models on real data of mining companies. After a thorough analysis to test the functionality of bankruptcy models on real data from mining companies, the most appropriate model for estimating the evolution of bankruptcy probability risk was identified.