Binary Choice Models-based Assessment of Company’s Financial Sustainability

Abstract

Assessment of financial sustainability is a key instrument that every company should use to successfully operate in the contemporary marketplace. In this paper profit was chosen as one of the sustainability indices and binary choice model logistics regression model (logit model) was built for that index. The research data for this study is drawn from accounting statements of a textile industry business in Samara city. A combination of econometric approaches was used in the data analysis. Binary choice models were adopted in this research. Then those models were estimated for validity. Also scenario forecasts methodology was employed in this study. Several logit models with a set of explanatory variables were constructed. After the comparison of those models the preferred one was determined. Based on that model a scenario for profits was forecasted including both the worst-case and the best-case ones. The average-case scenario forecast was also made.