The predictive ability of working capital changes as an indicator of potential corporate bankruptcy in the Czech Republic

This thesis investigates the relationship between changes in working capital and the risk of corporate insolvency in the Czech Republic. The primary objective is to determine whether selected working capital indicators can serve as reliable predictors of impending financial distress, thereby contributing to the early detection of warning signals for company management, investors, and creditors. The theoretical part of the thesis first defines the concepts of working capital and insolvency. This is followed by a review of relevant literature, which serves as a basis for identifying and evaluating key indicators that may signal a deteriorating financial position. The empirical section focuses on an analysis of a sample of Czech companies that declared bankruptcy between 2019 and 2024. Financial data from the three years preceding insolvency are examined, and the predictive power of selected indicators in the year immediately prior to bankruptcy is assessed using logistic regression analysis. From a practical perspective, the developed logistic regression model can serve as a tool for evaluating corporate financial health and tracking risk development over time. Owing to its transparent design and reliance on commonly available accounting data, the model is well-suited for practical business use—for instance, in setting trade conditions, assessing partner creditworthiness, managing credit limits, or designing internal early warning systems. Thus, this thesis provides not only a theoretical contribution to understanding the dynamics of corporate bankruptcy but also a practical framework for developing tools to prevent financial crises and enhance corporate financial stability.