PREDICTIVE POTENTIAL OF FINANCIAL INDICATORS FOR PREDICTION OF DIFFICULTIES IN LOAN REPAYMENT

This paper explores predictive potential of financial ratios in discrimination of companies which pay bank debt on time, from companies that have difficulties in loan repayment. Research was conducted by using the purposive sample of small Croatian companies. Research aim was to find financial ratios (group of ratios) effective in identifi cation of companies which will not be able to pay due debt on time, before the loan has been granted. Identified ratios would help bank analysts in assessment of credit risk of potential clients. On the basis of conducted research and results of univariate and multivariate analysis, discriminatory and predictive ability of some analysed ratios have been proven. Net working capital to Total assets and Internal financing are shown as statistically significant and relevant for prediction of difficulties in loan repayment. With certain extent of caution, it can be stated that Quick ratio, Current ratio and Debt capital to Business revenues are successful in discrimination of accurate companies from companies with difficulties in loan repayment. Additionally, the group of ratios has been found: Internal financing, Quick ratio, Debt capital to Business revenues, Return on investment and Core business profitability have an ability to recognise potential bank clients that will not repay debt on time.