Probability of Failure for Building Companies

This study is dedicated to the problem of bankruptcy prediction. Nowadays the evaluation of firm’s creditworthiness has become a vital part of any business since there are an increasing number of insolvent firms. The aim of the research is to investigate what financial ratios can be treated as effective predictors of failure for Russian firms in building sector. The data consists of nine coefficients derived from the financial statement for 45 firms that faced bankruptcy procedure from 2009 to 2015 and 177 companies which operated well during this period. As a result two logit models are constructed with predictive ability over 81%. One model includes government regulatory coefficients and shows that absolute liquidity ratio has the most significant impact on firm’s failure. Another model proves the fact that coefficients which were widely employed by Western and Russian authors can be reliable predictors for company’s bankruptcy. Key words: Bankruptcy prediction, financial ratios, logit model, bankruptcy procedure, regulatory coefficients, predictive ability, firm’s insolvency, financial ratios analysis.