Impact of Profitability of Ukrainian Enterprises on Their Bankruptcy

• Published in: Montenegrin journal of economics 2024-04, Vol.20 (2), p.221-235
• Main Author: Poliakov, Rodion
• Format: Article
• Language: English
• Subjects: Bankruptcy; Correlation analysis; Financial performance; Insolvency; Liquidity; Management of crises; Profitability; Regression analysis; Rehabilitation; Reliability; Solvency; Statistical data
• ISSN: 1800-5845; 1800-6698
• DOI: 10.14254/1800-5845/2024.20-2.18

Company bankruptcy is a mechanism that serves a dual purpose. On the one hand, it facilitates the removal (liquidation) of financially insolvent enterprises from the market, particularly those unable to settle their accounts payable and lacking prospects for growth. On the other hand, it plays a vital role in establishing the necessary conditions for restoring solvency and liquidity, thus ensuring opportunities for future development. This can be achieved, in particular, by concluding an amicable agreement and rehabilitation procedure. Shifting the focus in the crisis management system from the challenge of acquiring borrowed capital to enhancing profitability is a promising approach to overcome financial difficulties faced by companies. This shift not only reduces the likelihood of bankruptcy but also minimizes the prospect of subsequent liquidation. The purpose of the paper is to investigate how the profitability of operating activities in Ukrainian enterprises affects the number of bankruptcy cases, because it is an important task in preventing financial difficulties, bankruptcy, and liquidation of companies. The paper conducts a correlation and regression analysis to assess the impact of the profitability of operating activities on the number of bankruptcy cases completed with the approval of the liquidator's report. Based on the statistical data from the State Statistics Service of Ukraine (SSSU) for the period from 2014 to 2021, the above-mentioned analysis shows a negative relationship between the profitability of operating activities of Ukrainian enterprises and the number of completed bankruptcy cases approved by the liquidator's report (r = -0.86; D = 0.74). It has been determined that operating activity of Ukrainian enterprises accounts for 74% of all factors affecting the number of bankruptcy cases completed with the approval of the liquidator's report. The validation of the constructed regression equation and the estimation of its parameters confirm its statistical reliability and alignment with real economic processes. Specifically, the Fisher transformation (F = 4.11) exceeds the tabulated value (Ft = 2.45), i.e. (F > Ft), Se = 0.45; C_95% = 1.96). Based on the constructed equation, the number of bankruptcy cases completed with the approval of the liquidator's report was forecasted as an important task in preventing financial difficulties faced by companies, their bankruptcy, and liquidation within the framework of crisis management.