Agric. Econ. - Czech, 2009, 55(3):111-125 | DOI: 10.17221/589-AGRICECON

Possibilities of financial health indicators used for prediction of future development of agricultural enterprises

D. Kopta

Department of Accounting and Finance, Faculty of Economics, University of South Bohemia, České Budějovice, Czech Republic

The paper presents the possibilities how financial health indicators can be used both for the prediction of future value of agricultural holdings and for the prediction of the potential risk and dangers. The limited predicative ability of all indicators as compared to th recommended values is revealed in the first part of the paper. The second part of the article proves the hypothesis of the efficiency of indices in the inter-enterprise and time comparison. According to this hypothesis, holdings with a higher index value should be more successful in the following years. This part of investigation has shown the conditional efficiency of the Gurčík index and the IN99 index for the prediction of the increase in the value of a company. The relation between the calculated value of an index and the value of its future profit/loss has been proved for those indices. The possibilities how to predict a bankruptcy are limited. Agricultural holdings are threatened both with a long-term negative profitability and with a sudden fluctuation in the profit/loss from operations together with a high debt ratio. Each type of danger largely applies to a different kind of holding and each type of danger is indicated by a different kind of index. The possible problems with the long-term negative profitability have been indicated reliably by the OP index of financial health and by the Gurčík index. Problems with solvency have been partially predicted by the IN95 index and the Chrastinová index (these results were not statistically significant). The final part of the paper is aimed at the analysis of the advantages and disadvantaged of individual indices. A number of financial indicators for agricultural holdings correlate with the future development of a holding but the relation is non-linear (e.g. debt ratio indicators) or outweighed by another factor (e.g. activity indicators, where the development corresponds rather to the production specialization). Another reason for unsatisfactory results of the prediction are the frequent extreme values of the non-standardized indicators. The predicative ability of individual indicators is also reduced by the unsuitable setting of weights for indicators.

Keywords: bankruptcy, financial analysis, financial health, shareholder's capital value, prediction of future development, variability, agricultural holding

Published: March 31, 2009  Show citation