Research on the Bankruptcy Risk Prediction in Romania’s Agriculture – A Case Study on the Companies Producing Cereals

Agatha Popescu

Abstract:

The paper aimed to predict bankruptcy risk in agriculture using a case study in four companies producing cereals ( F)  in the South Eastern part of Romania, where this topic was not approached so far in this field of activity. In this purpose, the Z Score linear Altman's  and Conan & Holder's models were applied and the empirical data were collected from the Balance Sheet and Profit and Loss Account of the companies for the period 2012-2014. The company ranking was established using the Points Method applied on the estimated Z Scores. In the analyzed period, most of the companies were situated in the "Grey zone" by Altman's model, meaning that the financial situation was very low, and the companies were close to the bankruptcy status. Exception was made by F1 and F4 which were situated in the "Distress" zone in 2013 and respectively 2014, that is in danger to fail, and F4 which was in the "Safe" zone with a good financial situation and low bankruptcy risk in 2014. The Z scores obtained by Conan & Holder's model discriminated the companies as follows: very good companies, with less than 10 % bankruptcy risk: F2 in 2014 and F3 in 2012 and 2014; good companies with a good financial situation and failure risk between 10-30 % in 4 cases, companies with a low  financial situation and bankruptcy risk 30-65 % in 3 cases, and 65-90 % risk in one case, and only one company, F4, was considered almost bankrupt with 90 % failure risk in 2013. The main conclusions were: (i) In agriculture, financial statement of the companies is weak in general and many holdings have a high degree of bankruptcy risk; (ii)The Z Scores estimated using Altman's model were higher than the ones estimated using Conan & Holder's model, but any model is useful de predict the future situation of a company; (iii) Like in other economic branches, the prediction of bankruptcy risk is very important in agriculture, as managers to have time to analyze the financial situation and take the corresponding measures across the year to improve it and avoid failure.