Abstract:
In this paper the applicability of the Edmister model for the assessment of credit risk in small and medium sized enterprises (SMEs) was examined by testing the hypothesis that the Edmister model is applicable for predicting financial difficulties of SMEs in Croatia. Data from a data base of financial reports of SMEs in Croatia managed by FINA, as well as internal data and records of one of the major banks in Croatia were used. Data of 822 enterprises were collected and analysed. The Edmister Z-score was calculated for all 822 SMEs and finally only enterprises with the Edmister Z-score lower than 0.47 or higher than 0.53 (a total of 760 enterprises) were selected to the final research sample. A method of classification analysis and compliance measurement Cohen's Kappa were used for testing the research hypothesis. On the basis of the research results, it can be concluded that the Edmister model is not applicable for predicting financial difficulties of SMEs in Croatia.