Tools for predictive modeling in the financial debt restructuring process of business entities

Abstract

This article explores the possibilities of applying predictive modeling tools in the process of financial debt restructuring of business entities operating in a critical financial condition. The role of forecast financial statements – namely the forecast balance sheet, income statement, and cash flow budget – is substantiated as a key analytical basis for assessing solvency and the entity’s ability to operate in accordance with the going concern principle, in compliance with the requirements of ISA 570. Particular attention is paid to net cash flow from operating activities as a decisive indicator of the debtor’s actual ability to fulfil monetary obligations within a restructuring plan. The importance of using historical financial reporting indicators to diagnose the causes of financial difficulties and incorporate them into forecast models is emphasized. The expediency of applying the direct method of cash flow forecasting is justified as the most reliable approach to assessing the feasibility of debt servicing and repayment. It is demonstrated that the use of predictive financial modeling enhances the soundness of independent expert conclusions regarding the restoration of solvency of business entities, the repayment of loan obligations of clients of banking institutions, and their further functioning.