Insolvency in the Republic of Croatia

Abstract

The issue of insolvency is significantly present in countries undergoing transition. In Croatia, there has been significant research on the possibilities of using the existing models for determining the domestic companies’ ability to maintain solvency. Likewise, no model based on business enterprises’ financial data has yet been proposed, which leaves an open space for this research. The purpose of this paper is to calculate and analyse solvency indicators; total debt to assets ratio, total debt to equity ratio, Altman Z-score, and the Kralicek Quick Test. This paper analyses the financial data for the period 1996–2014 and provides evidence that the insolvency of Croatian companies increased with the global financial crisis. Multiple regression analysis is used in order to show the relation between total debt to assets ratio as the dependent variable, and current assets and liabilities ratio and dummy variables as independent variables. The conclusions and recommendations for mitigating the impact of insolvency in this paper would be useful for managers, public policymakers and all stakeholders in companies with financial problems, as well as for financially still-healthy companies.