Bankruptcy and financial stress models as an early warning system

With the financial crises, the possibility of bankruptcy, which is the worst situation for firms, or financial failure, which is hoped to be recoverable, comes to the fore. In such periods, it has been observed that a large number of companies around the world have declared bankruptcy or requested bankruptcy postponement. The difficulty and inability of companies to pay their loans and debts are also indicators of financial failure. Companies facing such situations are expected to take precautions. In cases where companies cannot overcome these financial difficulties, bankruptcy is in question. As a result of the financial stress experienced by companies, investors tend to avoid risk for fear of failure. In order to take precautions by making predictions for companies that want to avoid risk, researchers have given companies the opportunity to measure their financial success or failure with the models they have developed by utilizing financial ratios. The aim of this study is to predict the future failure and possible bankruptcy of the companies based on their past data. The first part of the study includes general information about financial failure. In the second section, the models used in the prediction of financial failure are presented. In the third section, financial failure is predicted with the help of Altman Z-Score and Springate S-Score models with the data obtained from the financial statements of 45 companies operating in the manufacturing sector in BIST 100 between 2011 and 2022. In the fourth and final section, financial failure forecasts, comparison and interpretation of both models are included in the study.