Financial Early-warning Model Based On The Financial Crisis Stage Study

Nowadays, Financial distress happens frequently and the losses from financial distress is more and more serious. So many researchers from all over the world have interested in financial alert, and big achievements have been reached. But, there are some disagreements between different researchers. Sometimes these disagreements are significant, such as the financial ratios which have been used in financial alert models, and these disagreement hinder the further research about financial alert. In general, everything has different stages with different characteristics, including financial distress. We use the listed companies between 2000 and 2003 as samples to carry out our research. ST companies will be treated as the distressed companies, and Non-ST Company will be treated as the normal company. We collect five years data before ST, use regression model for each year's data and get five different models respectively. Through the analysis of different models, we find that there are different stages of financial distress with different characteristics. At the fifth year before ST, it could be called incubation period. During this period, there are no significant differences between the two kinds of companies, with only the total profitability being different. At the fourth and third year before ST, it could be called development stage. During this period of time, ST company's debt ratio becomes high and high. So the financial risk is becoming more and more serious. At the second and first year before ST, it could be called serious stage. During this period of time, the core business of ST companies has lost the ability to acquire revenue steadily. As a result of these analyses above, we propose that we should set up different alert models for different stages. At last, we analyze the characteristics of each stage and propose the suggestions to protect the company.