Bankruptcy risks assessment: a comprehensive review of qualitative indicators

Abstract

This article delves into the nuanced realm of bankruptcy risk assessment, shifting the focus from traditional quantitative financial metrics to a comprehensive evaluation of qualitative indicators. It meticulously categorizes these indicators into four pivotal groups: Management, Financial, Legal, and Operational. The Management category scrutinizes elements like employee loyalty and the professionalism of management, acknowledging their significant influence on a firm's fiscal stability. The Financial section emphasizes assets and the quality of financial reporting, highlighting how these aspects clearly and accurately reflect a company's financial standing. The Legal dimension encompasses regulatory compliance and court disputes, underscoring the fiscal implications of legal adherence and challenges. Lastly, the Operational category includes market reputation, innovations, productivity, standard compliance, and flexibility, each representing operational factors with potential impact on solvency. A key innovation of this study is the development of a unified 5-point scoring scale for the quantitative interpretation of these qualitative indicators. This scale bridges the gap between qualitative evaluation and quantitative analysis, furnishing a robust tool for comprehensive bankruptcy risk assessment. Integrating diverse qualitative factors with a structured scoring system in this research article offers a multidimensional approach to understanding and predicting bankruptcy risks, marking an advancement in financial risk assessment.