Predictive Modelling based Financial Distress Estimation System to better Deal with Insolvency Situation

Financial distress happens when a company consistently experiences significant losses or when it becomes bankrupt, meaning its debts outweigh its assets. However, there are various factors related to methods and practices which contribute to the significant number of bankruptcy and other financially troubled situations that company encounter. The study aims to construct an accurate prediction model of financial distress of the firms and improve insolvency control with the help of diverse financial signals. Conducting the research within the descriptive and exploratory research framework, the study includes both the qualitative and quantitative data and primarily uses the financial reports and industry analysis data. The study also underscores the importance of identification of the financial disorders especially at initial- stages in view of newly evolved environment of insolvency reform and India’s Insolvency and Bankruptcy Code, 2016. The rationale of this legislation is to modernise insolvency procedures and restore public credibility to insolvent businesses’ creditors. The proposed model moves such financial indicators as insolvency filings, the financial distress scores and differentiates them from other financial indicators which include profitability and liquidity for the evaluation of the financial position of a company. The conclusions’ purpose is to help the commercial undertakers and policymakers who need this fundamental data to balance and reduce the risks involved in the expenditure of resources and the timely planning of the future.