Evaluating financial stability and predictive modelling of SME prosperity in manufacturing

Research background: This study evaluates the financial stability of small and medium-sized enterprises (SMEs) within Slovak manufacturing, classified under NACE C. The sector, which is characterised by the physical or chemical transformation of materials into new products, represents a significant part of the Slovak economy. The analysis uses financial data from the FinStat database covering the period 2018–2023, focusing on key financial ratios related to activity, liquidity, profitability, and indebtedness. Purpose of the article: The main aim of this paper is to assess the financial health of SMEs in Slovak manufacturing and to develop a predictive model that identifies financially distressed firms using key financial ratios. Methods: A sample of 1,848 firms continuously observed over six years was analysed to assess temporal changes in financial performance indicators using median values. Statistical significance was tested via the non-parametric Friedman test, revealing that all selected financial ratios were influenced by time. Indicators such as assets turnover, cash ratio, return on equity, and indebtedness ratios demonstrated notable fluctuations, reflecting shifts in firms’ operational and financial health. Furthermore, the study developed a predictive model for financial health in 2023 based on 2022 financial indicators through discriminant analysis. The model classified firms as prosperous or non-prosperous based on the equity-to-liabilities ratio. Findings & Value added: Key predictors included the self-financing ratio, financial leverage, commercial insolvency ratio, current ratio, return on equity, and creditors' payment period. The model achieved a high classification accuracy of 91.2%, correctly identifying 96.1% of prosperous and 86.3% of non-prosperous enterprises. The model's excellent predictive capability was further confirmed by the ROC curve analysis, yielding an area under the curve (AUC) of 0.952. These results highlight the model’s effectiveness in forecasting financial health for manufacturing SMEs in the post-COVID context in Slovakia.