Stochastic Methods for Prediction of the Bankruptcy Risk of SMEs

In economic theory, there were and still are concerns for the development of bankruptcy risk prediction methods starting from their rates related to the status of “health” or “weakness” of economic entities. One of the financial analysis methods commonly used today are the stochastic methods. Comparing a priori and a posteriori probabilities allows the acknowledgement of the Score areas where the risk of bankruptcy is higher. The Score function is very sensitive to any relevant changes in the economic situation and get a genuine alarm about the economic-financial status, offering the possibility of a superior quality forecasting. This paper presents, in a first part, the theoretical formulation of the same stochastic methods and Score function for the financial analysis of an economic entity and, in the second part, the results obtained by applying this methodology in the small and medium enterprises in the Romanian 3rd development Macro- region. Using this methodology has enabled both the least risk of bankruptcy for some SMEs, but also identifies strengths and weaknesses in financial management for the grounding of new strategies for maintaining and development of the unit.