Publication detail

The indirect verification of the going concern assumption by analysing the threat of bankruptcy

KARAS, M. REŽŇÁKOVÁ, M.

Original Title

The indirect verification of the going concern assumption by analysing the threat of bankruptcy

Type

journal article in Web of Science

Language

English

Original Abstract

The generally accepted aim of doing business is to maximize the business value. The value of a business strongly depends on its ability to generate future cash flow for its owners. A necessary condition is that the business remains financially viable or in other words, the business should meet the assumption of going concern principle. Verifying such an assumption, however, remains an issue. We suggest that this could be indirectly verified as an absence of threat of imminent financial distress. For this purpose, we analysed a set of cash flow and profit based ratios along with a set of other ratios with a potential influence on the business value. In terms of sample we focus on Czech manufacturing SMEs that were selected, due to their specific features resulting from the financial constraints. The F-test and ttest were employed as a method of identifying the typical signs of risk of financial distress or rather obstacles in accepting the going concern principle. We found that only four of the analysed ratios could serve effectively for this purpose. The best results were achieved when employing ratios describing the operational cash flow or short-term debt, where the gap between viable business and those with limited prospects is the widest.

Keywords

cash flow; going concern; business default

Authors

KARAS, M.; REŽŇÁKOVÁ, M.

Released

24. 12. 2020

Publisher

Faculty of Economics, Business and Tourism, Split, Croatia

ISBN

1331-0194

Periodical

Management Journal of Contemporary Management Issuer

Year of study

25

Number

2

State

Republic of Croatia

Pages from

25

Pages to

40

Pages count

16

URL

https://hrcak.srce.hr/247330

Full text in the Digital Library

http://hdl.handle.net/11012/196654

BibTex

@article{BUT167425,
  author="Michal {Karas} and Mária {Režňáková}",
  title="The indirect verification of the going concern assumption by analysing the threat of bankruptcy",
  journal="Management Journal of Contemporary Management Issuer",
  year="2020",
  volume="25",
  number="2",
  pages="25--40",
  doi="10.30924/mjcmi.25.2.2",
  issn="1331-0194",
  url="https://hrcak.srce.hr/247330"
}