Review article
FINANCIAL INSTABILITY OF ENTERPRISE AS THE MAIN OBSTACLE HAMPERING DEVELOPMENT IN TURBULENT ENVIRONMENT
Konstantin Chernavsky
; University of Latvia, Latvia
Abstract
This research is related to simulating the leading indicator of financial instability of an enterprise – with
a view of issuing an early warning as to about possible forthcoming changes in the enterprise’s activities.
This index has been acknowledged as the leading one with respect to the enterprise, since is it can
reflect the future financial capacity, based on the initial data already available. The financial stability
concept implies diagnostics of an enterprise’s activities on a long-term horizon. The first group of
financial stability indices operates with discreet findings; the second group of financial stability indices is
capable of reflecting continuous random variables. The diagnostics process consists of two stages – the
analysis of the past activity of enterprise and the simulation of its future activities. At the second stage,
experts encounter the fundamental problem of forecast inaccuracy and unpredictability of results for
years ahead. The goal of this research is to supplement the enterprise financial stability concept and to
simplify the tasks of simulating the future activity - by working out and using the leading indicator. The
object of research is the activity of three conspicuous Latvian enterprises operating in three well-known
sectors of economy. The subject of research is financial stability of enterprise, characterized by
harmonic functioning of the activity and the process. The main problem to be solved to attain the goal is
the validation of the future financial instability index as a leading indicator and the proof of its efficiency.
In process of research, monographic method, comparative analysis method, and method of induction as
well as some other mathematical and econometric approaches were used. The results obtained are of
practical nature, since they allow one to simplify the procedure of enterprise finance stabilization under
a turbulent environment by using the possibility of obtaining important information describing future
shocks.
Keywords
Activity; Financial stability; Leading indicator; Process
Hrčak ID:
128537
URI
Publication date:
1.3.2014.
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