Financial and non-financial factors affecting solvency: a theory review
2017
Rozenbaha, I., University of Latvia, Riga (Latvia). Faculty of Business, Management and Economics
Researchers have developed various models for predicting insolvency as well as analysed dozens of various financial ratios; however, a universal model and set of ratios have not been found. Each country has its own tax policy and national economic indicators that influence the respective business environment. Besides, such factors as business managers’ competence and appropriate adoption of decisions can also influence sustainable operation of businesses. In the review of scientific literature on the development of models for forecasting insolvency, the author has created her own theoretical model based on the analysis of financial and non-financial factors. The aim of the research is to analyse the financial and non-financial factors mentioned in the research and choose the ones that will be used in further research about Latvian agriculture companies with regard to the available data. The literature review shows that research defines 4 directions of finance that analyse liquidity, turnover, profit and liabilities based on the data from balance sheets and profit and loss accounts. It is more complicated to establish the non-financial factors due to the unavailability of information; however, it is still possible to analyse such factors as company’s age, size and payment behaviour. The author also mentions tax liabilities as an additional non-financial factor that should be analysed in further research.
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