Round 1

Reviewer 1 Report

Dear authors,

Here you have my comments.

Best regards 

———

There is a vast literature about the financial performance of non-profit organisations.

In this study, the main objective is to determine the financial status of Slovak NPOs. The sample consists of 351 associations and in the study the variable under study "financial status" is explained by 14 independent variables. The database used is for 2017. The authors indicate that the model used correctly classifies almost 91% of NPOs in the training sample, respectively, less than 80% in the test sample. However, the results show that all vulnerable NPOs are correctly classified based on the test sample.

The structure of the article is appropriate; the English language is appropriated, and the text is well writtenwell structured, but very confusing.

1. The literature review could be more updated, the most updated articles refer to 2018. 2. The innovation of this study should be clarified, since the literature on this topic is very extensive. 3. The data used has a 4 year time lag, which means that the results may be out of sync with current reality 4. Table 4 with the descriptive statistics should be in section 3. 5. The theoretical framework of the model is explained, but in a very confusing way 6. It is not clear how the results in table 11 were estimated. What is the estimation method?

Author Response

REVIEW 1

There is a vast literature about the financial performance of non-profit organisations.

In this study, the main objective is to determine the financial status of Slovak NPOs. The sample consists of 351 associations and in the study the variable under study "financial status" is explained by 14 independent variables. The database used is for 2017. The authors indicate that the model used correctly classifies almost 91% of NPOs in the training sample, respectively, less than 80% in the test sample. However, the results show that all vulnerable NPOs are correctly classified based on the test sample.

The structure of the article is appropriate; the English language is appropriated, and the text is well written well structured, but very confusing.

1. The literature review could be more updated; the most updated articles refer to 2018.

The issue of predicting financial vulnerability in the non-profit sector is rare in contrast to the for-profit sector. Nevertheless, we tried to select theoretical and empirical knowledge from relevant authors from this period.

Fedele, A., Miniaci, R., & Tortia, E. (2021). Strong client orientation, little leverage in nonprofit firms? Strong client orientation, little leverage in nonprofit firms? doi:10.1007/s11187-020-00438-5

Garcia-Rodriguez, I., Romero-Merino, E., & Santamaria-Mariscal, M. (2021). The role of boards in the financial vulnerability of nonprofit organizations. Financial accountability & management, 37(3), 237-261. doi:10.1111/faam.12269

Hung, C., & Hager, M. (2019). The Impact of Revenue Diversification on Nonprofit Financial Health: A Meta-analysis. Nonprofit and voluntary sector quarterly, 48(1), 5-27. doi:10.1177/0899764018807080

Lu, J., Lin, W., & Wang, Q. (2019). Does a More Diversified Revenue Structure Lead to Greater Financial Capacity and Less Vulnerability in Nonprofit Organizations? A Bibliometric and Meta-Analysis. Voluntas, 30(3), 593-609. doi:10.1007/s11266-019-00093-9

Searing, E. (2018). Determinants of the recovery of financially distressed nonprofits. Nonprofit management & leadership, 28(3), 313-328. doi:10.1002/nml.21296

2. The innovation of this study should be clarified since the literature on this topic is very extensive.

We do not think that this topic is wide-ranging, because the prediction of financial bankruptcy is typical, especially in the for-profit sector. The leading authors on financial vulnerability in the nonprofit sector include Tuckman & Chang (1991), Greenlee & Trussel (2000), Trussel (2002),  and Trussel & Greenlee (2004). These the best-know authors focus mainly on non-profit organizations on the American continent.

In addition, we find that only seven relevant articles on financial vulnerability prediction for the nonprofit sector are indexed in the renowned Web of Science database based on three keywords such as vulnerability, nonprofit, and prediction as topic words using advanced search.

We believe that this research represents an important milestone as a starting point in the study of non-profit organizations in the Central Europe to estimate financial vulnerability using universal prediction model for all nonprofit organizations.

3. The data used has a 4 year time lag, which means that the results may be out of sync with current reality.

Although the set of indicators is calculated mainly on the basis of financial indicators from 2017. We believe that these results are relevant to the future, because the economic situation of non-profit organizations is not characterized by turbulent changes in contrast to business organizations. Most small non-profit organizations rely on the same donors and volunteers from the previous period. In the future, we would like to verify this model based on up-to-date data. The aim is to determine the predictive power for the impact of the COVID-19 pandemic. However, this research requires processing a lot of data on non-profit organizations from available databases, but especially from financial statements from the register of financial statements. The limitation of the research is mainly related to the fact that these data are available mostly as PDF files at

https://www.registeruz.sk/cruz-public/domain/accountingentity/simplesearch.

4. Table 4 with the descriptive statistics should be in section 3.

We do not understand your comment, because descriptive statistics are a standard part of the results in many studies by Matthiesen, J. A. (2009) and Valaskova, K., Kliestik, T., Svabova, L., & Adamko, P. (2018b).

5. The theoretical framework of the model is explained, but in a very confusing way.

We tried to present initial studies on the prediction of financial vulnerability of non-profit organizations from important authors to explain key theoretical and empirical knowledge about vulnerability with a focus on defining the financial vulnerability of non-profit organizations, key models with significant indicators, too.

It is not clear to me why the presented article is characterized as confusing, because in introduction of this review there is paper signed as structured.

6. It is not clear how the results in table 11 were estimated. What is the estimation method?

The results of the discrimination analysis based on the “stepwise method” achieve the best results compared to “enter independents together”.

Author Response File: Author Response.docx

Reviewer 2 Report

Dear authors,

I found the work interesting after reading the abstract and the introduction. I consider that it presents a very current and interesting topic, capable of making a valuable contribution to literature. On the other hand, it is an issue that is linked to sustainable development and CSR practices, which make the paper even more valuable and current, given the importance of sustainability today. For these reasons, and due to the fact that more research is needed on this topic, I think it fits perfectly in this journal.

However, I am going to make some observations, in order to improve the text of the article.

1. The introduction is scarce, I believe that it must be improved in many ways. For example, it must contain more information about the milestone in the work being carried out, it must reflect the gap in the literature that has motivated the focus of this work, it must express the objective of the work. Also the methodology below, briefly. And finally, the results obtained, the contribution of the work to the academic environment and the entities should also be briefly reviewed

2. I believe that the theoretical framework is adequate and makes an interesting journey through the theme. But I believe that it should be improved, introducing more evidence of the role that these entities play in the face of sustainability. It would be interesting to mention some theories that support the work, explaining them in the theoretical framework, and then, in the results section, going back to the obtained results and supporting the theories employed. For example, there could be a theory of stakeholders, a theory of legitimacy, resources and capabilities and a theory of dynamic capabilities. The authors should see which ones fit better in the study.

3. I consider that within a theoretical framework, the explanation of the model (from line 97) should be reflected in another section, a subsection by example, with the end of falling delimited, on the one hand, the theory, and on the other, the most practical application. Or, if it was possible to link this with the section of methodology, maybe it will also be expressed.

4. In relation to the results, they are interesting. However, from my point of view, I suggest the possibility of improving them with the link to the theories expressed in the theoretical framework.

5. Regarding the discussion of the results is adequate.

6. The conclusions of the paper should be improved, introducing the implications derived from the work, both academic and management, as well as the limitations of the work and future lines of research.

7. The references must be updated, not having observed references after 2018.

Good luck with the paper. Best regards,

Author Response

REVIEW 2

Dear authors,

I found the work interesting after reading the abstract and the introduction. I consider that it presents a very current and interesting topic, capable of making a valuable contribution to literature. On the other hand, it is an issue that is linked to sustainable development and CSR practices, which make the paper even more valuable and current, given the importance of sustainability today. For these reasons, and due to the fact that more research is needed on this topic, I think it fits perfectly in this journal.

However, I am going to make some observations, in order to improve the text of the article.

1. The introduction is scarce, I believe that it must be improved in many ways. For example, it must contain more information about the milestone in the work being carried out, it must reflect the gap in the literature that has motivated the focus of this work, it must express the objective of the work. Also, the methodology below, briefly. And finally, the results obtained, the contribution of the work to the academic environment and the entities should also be briefly reviewed.

We summarize a wide range of theoretical knowledge about risk management in the non-profit sector. These studies assess the financial vulnerability of Americans as opposed to European nonprofits. Moreover, we find that many studies are focused on predicting the financial situation in the for-profit sector. These findings determine the scientific research gap for relevant future research. Our goal is to create a tool for estimating the financial status of non-profit organizations. The issue is very challenging because data on non-profit organizations are not available to the same extent as on for-profit companies. The results show that the financial status of non-profit organizations depends mainly on debt ratio and the share of subsidies in total revenues on the based publicly available financial statements on Slovak non-profit. The model shows that non-profit organizations should not rely on contributions from the national or regional level. In other words, non-profit organizations should diversify their revenue structure mainly through self-financing.

The research is based on a comprehensive methodology. We identify potentially significant variables based on previous research and our professional experience. Subsequently, we test the correlation and multicollinearity among the input variables. The initial sample is divided into training and testing the sample. Finally, we create a prediction model composed of significant variables. This model is verified on a test sample.

2. I believe that the theoretical framework is adequate and makes an interesting journey through the theme. But I believe that it should be improved, introducing more evidence of the role that these entities play in the face of sustainability. It would be interesting to mention some theories that support the work, explaining them in the theoretical framework, and then, in the results section, going back to the obtained results and supporting the theories employed. For example, there could be a theory of stakeholders, a theory of legitimacy, resources and capabilities and a theory of dynamic capabilities. The authors should see which ones fit better in the study.

We added basic theories about the origin of non-profit organizations, such as interdependence theory, theory of governmental and market failures (theory of public goods), contract failure theory, welfare state theory, interdependence theory and social origins theory to the literature review.

3. I consider that within a theoretical framework, the explanation of the model (from line 97) should be reflected in another section, a subsection by example, with the end of falling delimited, on the one hand, the theory, and on the other, the most practical application. Or, if it was possible to link this with the section of methodology, maybe it will also be expressed.

We do not understand your comment. We tried to present theoretical knowledge from important authors, especially in the chronological process.

4. In relation to the results, they are interesting. However, from my point of view, I suggest the possibility of improving them with the link to the theories expressed in the theoretical framework.

We summarize our results with a model from previous research in the discussion. The research methodology is based on a wide range of relevant theoretical and empirical findings from leading researchers from around the world. We focus mainly on the sample, methods and financial indicators. Our research is based on pioneers Tuckman & Chang (1991). Subsequently, most authors create, verify and compare results from previous studies. We believe that financial vulnerability depends on several financial indicators, such as equity, revenue concentration, administrative costs, and profit margin. However, these surveys are based on data from US nonprofits. We are aware that the Slovak financial statements of non-profit organizations differ significantly from American organizations. In addition, we use specific financial indicators as opposed only to financial indicators from previous studies. We think that regional specificities need to be taken into account in research.

5. Regarding the discussion of the results is adequate.

Thank you.

6. The conclusions of the paper should be improved, introducing the implications derived from the work, both academic and management, as well as the limitations of the work and future lines of research.

The research shows that non-profit organizations should not rely solely on contributions from national and regional institutions. Non-profit organizations should focus on contributions from their own resources, as these resources can be influenced in the management of the non-profit organization. If organizations rely on grants along with high indebtedness, managers face a high degree of financial vulnerability. Poor financial management of the organization leads to significant problems in terms of sustainability of planned activities.

7. The references must be updated, not having observed references after 2018.

The issue of predicting financial vulnerability in the non-profit sector is rare in contrast to the for-profit sector. Nevertheless, we tried to select theoretical and empirical knowledge from relevant authors from this period.

Fedele, A., Miniaci, R., & Tortia, E. (2021). Strong client orientation, little leverage in nonprofit firms? Strong client orientation, little leverage in nonprofit firms? doi:10.1007/s11187-020-00438-5

Garcia-Rodriguez, I., Romero-Merino, E., & Santamaria-Mariscal, M. (2021). The role of boards in the financial vulnerability of nonprofit organizations. Financial accountability & management, 37(3), 237-261. doi:10.1111/faam.12269

Hung, C., & Hager, M. (2019). The Impact of Revenue Diversification on Nonprofit Financial Health: A Meta-analysis. Nonprofit and voluntary sector quarterly, 48(1), 5-27. doi:10.1177/0899764018807080

Lu, J., Lin, W., & Wang, Q. (2019). Does a More Diversified Revenue Structure Lead to Greater Financial Capacity and Less Vulnerability in Nonprofit Organizations? A Bibliometric and Meta-Analysis. Voluntas, 30(3), 593-609. doi:10.1007/s11266-019-00093-9

Searing, E. (2018). Determinants of the recovery of financially distressed nonprofits. Nonprofit management & leadership, 28(3), 313-328. doi:10.1002/nml.21296

Good luck with the paper. Best regards,

Reviewer 3 Report

Thank you for the opportunity to review your manuscript entitled “Prediction Model as Sustainability tool for Assessing Financial Status of Non-Profit Organizations in the Slovak Republic.” I found it interesting and timely and hope that the comments that I have made prove to be constructive and help the authors further refine their manuscript.

1. The abstract does not clearly represent the study. It talks about “sustainable development and cooperation between the private and non-profit sectors”, but non-profits are typically private as they cannot be publicly traded companies. So, really what you have here is the private sector cooperating with the private sector. Further, why should “The profit organizations select NPOs” to begin with? The abstract does not state anything about “The main aim was to create a model that can identify the financial vulnerability of a non-profit organization.” Furthermore, please remove these methodological statements from the abstract as they do not belong here “The financial status is explained by 14 independent variables. The data obtained from Amadeus, Finstat, Ministry of Finance, and Ministry of Interior of Slovakia in 2017.”
2. Please use for-profit when referring to profit organizations to be consistent with the literature.
3. The authors define a non-profit as follows: “In our paper, we define a non-profit organization as an organization in liquidation. In the Slovak Republic, there are many types of non-profit organizations like foundations, non-investment funds, civic associations, and non-profit organizations providing services of general interest. We focus only on foundations and non-investment funds.” However, not all organizations in liquidation are non-profits. The authors need to be more precise about the definition of a non-profit. I suggest using an established definition from the literature and not confusing the definition of a non-profit with your research context.
4. “According to Forum darcu (2016) [30] , the commercial (non-profit) organization is an organization established by at least one legal entity, such as a public company, limited partnership, limited liability company, and joint-stock company.” Are you saying that in the Slovak Republic, commercial non-profits can be publicly traded companies? This would seem at odds with the mission of most non-profits. Public companies are about maximizing shareholder profits.
5. The authors talk about the private sector, commercial sector, public sector, and non-profit sectors. It seems to me that the authors are referring to the private sector as the commercial sector. If so, please use private sector as your terminology as that is well understood in comparison to the public sector. If these are truly 4 different sectors, then you will need to define them and probably include a table that compares and contrasts them in order for the reader to better understand their similarities and differences.
6. The authors report lots of different definitions of financial vulnerability, but they need to make it very clear which definition they are adopting in this paper.
7. It’s not clear why we need a new model? What are the limitations of existing models? Especially since only two of this study’s independent variables were found to be significant?
8. The authors misspell the acronym for “dotation to total revenues (DOBREV)” – should be DOTREV. US should be U.S., UK should be U.K.
9. The introduction is not particularly compelling. I recommend that the authors structure the introduction as follows: (1) a brief description of the semiconductor industry, (2) what has already been done in the literature, (3) what has not been done in the literature, (4) what is left to do, (5) what you are doing, and finally (6) your contributions.
10. The literature review would benefit from a more detailed elaboration of prior findings. For example, the authors state that “Andres-Alonso, Garcia-Rodriquez & Romero-Merino (2016) [13] analyzed the financial vulnerability of 228 UK non-profit organizations during 2008-2012…”, but do not elaborate on any findings or how these findings may establish a need for this study.
11. Present only that information that is pertinent to the study and reduce extraneous information. Also, it would be worthwhile to revisit the logical flow of the study.
12. The study’s contributions are not clearly articulated. I’m not entirely certain what this study contributes that is entirely different from what previous studies of financial vulnerability among non-profits have found. Indeed, it seems rather obvious that non-profits suffer from heightened financial vulnerability.
13. The lack of theoretical grounding for this study is a major problem. Indeed, the authors only mention interdependence theory in the conclusion.
14. The hypotheses are not motivated by theory. What is worse is that the authors took the ill-advised approach of creating competing hypotheses, first stating that an independent variable will not have a significant impact on the financial status of NPOs and then stating the exact opposite? Which is it? You need to take a stand and either provide theoretical support for why an independent variable should have an impact or not, but not both.
15. Are the operationalizations of your variables new or are they taken from the extant literature. Currently, this is unclear. If they are taken from the literature, you need to cite their sources. If they are all new, you need to do a better job of justifying why they are operationalized in this manner and how they are theoretically linked to non-profit financial vulnerability.
16. Don’t start a sentence with a number (e.g., “46 observations are also excluded.”).
17. Please include a correlation table.
18. I recommend calculating the condition index as a further check for multicollinearity.
19. Please use commas to separate the 000’s place in numerals in the tables.
20. The headings in Table 18 are too long and are cut off. Please correct this.
21. The generalizability of the study is an issue. Testing this model on firms from the Slovak Republic only is problematic. At the very least, the authors should verify the validity and replicability of the model on a second dataset from a different country.
22. Use first, second, third, fourth, fifth and not firstly, secondly, thirdly, fourthly, and fifthly.
23. Please use the Oxford comma when writing lists of three consecutive items.
24. The discussion should focus on explaining the significance of the study’s results. Currently, it reads a lot like a literature review. Thus, the authors should move those portions to the Literature Review section.
25. The manuscript would benefit from a thorough proofread by an experienced copyeditor due to errors in spelling, grammar, and sentence structure, which detract from readability.

Academic research is a discussion. I hope that the suggestions that I have made do not discourage the authors, but rather serve to help guide them to improve their manuscript further. Good luck with your research!

Author Response

REVIEW 3

Comments and Suggestions for Authors

Thank you for the opportunity to review your manuscript entitled “Prediction Model as Sustainability tool for Assessing Financial Status of Non-Profit Organizations in the Slovak Republic.” I found it interesting and timely and hope that the comments that I have made prove to be constructive and help the authors further refine their manuscript.

1. The abstract does not clearly represent the study. It talks about “sustainable development and cooperation between the private and non-profit sectors”, but non-profits are typically private as they cannot be publicly traded companies. So, really what you have here is the private sector cooperating with the private sector. Further, why should “The profit organizations select NPOs” to begin with? The abstract does not state anything about “The main aim was to create a model that can identify the financial vulnerability of a non-profit organization.” Furthermore, please remove these methodological statements from the abstract as they do not belong here “The financial status is explained by 14 independent variables. The data obtained from Amadeus, Finstat, Ministry of Finance, and Ministry of Interior of Slovakia in 2017.”

We have changed the introduction based on your recommendations.

2. Please use for-profit when referring to profit organizations to be consistent with the literature.

Done.

3. The authors define a non-profit as follows: “In our paper, we define a non-profit organization as an organization in liquidation. In the Slovak Republic, there are many types of non-profit organizations like foundations, non-investment funds, civic associations, and non-profit organizations providing services of general interest. We focus only on foundations and non-investment funds.” However, not all organizations in liquidation are non-profits. The authors need to be more precise about the definition of a non-profit. I suggest using an established definition from the literature and not confusing the definition of a non-profit with your research context.

We explain non-profit organizations as private entities not focused on making a profit. The goal of these organizations is not to make a profit, but to help people in need in particular. If the non-profit organization generates a profit, this profit is reinvested again.

4. “According to Forum darcu (2016) [30] , the commercial (non-profit) organization is an organization established by at least one legal entity, such as a public company, limited partnership, limited liability company, and joint-stock company.” Are you saying that in the Slovak Republic, commercial non-profits can be publicly traded companies? This would seem at odds with the mission of most non-profits. Public companies are about maximizing shareholder profits.

We rely on the definition of a commercial non-profit organization according to Forum darcu (2016). To illustrate, the typical commercial (non-profit) organization is Nadacia Kia Motors Slovakia is founded by Kia Motors Slovakia. These organizations are generally called “commercial” non-profit organizations. The term commercial (non-profit) organization means an organization that presents its activities together with the logo of the founding company, especially in the home region and the surrounding area. Many of these organizations are established primarily as a tool for building the concept of social responsibility. However, the benefits for major companies in the banking, insurance, and automotive industries are associated with contributions from taxes paid. These companies donate contributions from the tax paid to the “partner” non-profit organization, the contribution helps to build a good reputation in civil society.

5. The authors talk about the private sector, commercial sector, public sector, and non-profit sectors. It seems to me that the authors are referring to the private sector as the commercial sector. If so, please use private sector as your terminology as that is well understood in comparison to the public sector. If these are truly 4 different sectors, then you will need to define them and probably include a table that compares and contrasts them in order for the reader to better understand their similarities and differences.

Yes, right. We think that the commercial sector is a private sector.

6. The authors report lots of different definitions of financial vulnerability, but they need to make it very clear which definition they are adopting in this paper.

We explain that we divide the financial status of non-profit organizations into invulnerable and vulnerable non-profit organizations. By vulnerable non-profit organization we mean a non-profit organization in liquidation in contrast to non-vulnerable non-profit organizations. We do not rely on the definition of a vulnerable non-profit organization from previous research, because we do not have data mostly for the previous three-year period.

7. It’s not clear why we need a new model? What are the limitations of existing models? Especially since only two of this study’s independent variables were found to be significant.

We believe that the design model is simple for routine application by donors, contributors, banks and other stakeholders. However, the advantage of this model is its applicability in Central Europe, as the models from previous studies involve administrative costs. This item is available in the U. S. financial statements as opposed to the balance sheet and profit and loss account in Central Europe.

8. The authors misspell the acronym for “dotation to total revenues (DOBREV)” – should be DOTREV. US should be U.S., UK should be U.K.

Done.

9. The introduction is not particularly compelling. I recommend that the authors structure the introduction as follows: (1) a brief description of the semiconductor industry, (2) what has already been done in the literature, (3) what has not been done in the literature, (4) what is left to do, (5) what you are doing, and finally (6) your contributions.

We expanded the introduction with a goal, a brief methodology, and benefits based on the recommendations of the other reviewers.

10. The literature review would benefit from a more detailed elaboration of prior findings. For example, the authors state that “Andres-Alonso, Garcia-Rodriquez & Romero-Merino (2016) [13] analyzed the financial vulnerability of 228 UK non-profit organizations during 2008-2012…”, but do not elaborate on any findings or how these findings may establish a need for this study.

Yes, we accept this knowledge has no contribution in the theory.

11. Present only that information that is pertinent to the study and reduce extraneous information. Also, it would be worthwhile to revisit the logical flow of the study.

We tried to logically present the results of the work; we follow the “universal” scheme "Algorithm for Prediction Model Design".

12. The study’s contributions are not clearly articulated. I’m not entirely certain what this study contributes that is entirely different from what previous studies of financial vulnerability among non-profits have found. Indeed, it seems rather obvious that non-profits suffer from heightened financial vulnerability.

We explained the benefits of the study at the end of the article based on the recommendations by other reviewers.

13. The lack of theoretical grounding for this study is a major problem. Indeed, the authors only mention interdependence theory in the conclusion.

The interdependence theory along with the theory of governmental and market failures (theory of public goods), contract failure theory, welfare state theory, interdependence theory and social origins theory explain the origin of non-profit organization. These theories are not related to non-profit financial management. In the literature review, we present the most important initial studies by Tuckman & Changa (1991) Greenlee & Trussel (2000), Trussel & Greenlee (2004), and Trussela (2002).

These authors are considered one of the pioneers in this field, similarly to Altman (1968) in the field of financial bankruptcy prediction for companies in the for-profit sector.

14. The hypotheses are not motivated by theory. What is worse is that the authors took the ill-advised approach of creating competing hypotheses, first stating that an independent variable will not have a significant impact on the financial status of NPOs and then stating the exact opposite? Which is it? You need to take a stand and either provide theoretical support for why an independent variable should have an impact or not, but not both.

We establish 14 hypotheses based on theoretical knowledge from previous research together with our professional experience. The hypotheses deal with the influence of independent variables on the financial status of non-profit organizations. Independent variables include, namely equity, income diversification, debt ratio, and size. However, in our opinion the testing of five hypotheses is insufficient due to specific foreign conditions. In addition, we extend these important indicators from these research to other indicators based on our experience. We apologize for the confusing hypothesis. However, we established a null   hypothesis along with an alternative hypothesis to the same indicator. Based on your recommendations, we have deleted alternative hypotheses.

15. Are the operationalizations of your variables new or are they taken from the extant literature. Currently, this is unclear. If they are taken from the literature, you need to cite their sources. If they are all new, you need to do a better job of justifying why they are operationalized in this manner and how they are theoretically linked to non-profit financial vulnerability.

These indicators are based on previous studies and our professional experience. We assume that the long-known non-profit organization has more trust in citizens, so financial vulnerability is low. Moreover, we believe that the revenue structure affects the financial status of the non-profit organization. The typical financial variables take into account the revenue structure include CPTREV, DOTREV, and SALREV.

We also focus on the property structure because the non-profit is able to provide its services to the public if organization has tangible assets. The independent variables also include the logarithm of the assets. We apply a logarithm of assets compared to assets because the volume of assets is very different among the organizations in the initial sample. The logarithm eliminates these differences. We expect a non-profit organization with a larger volume of assets to be less vulnerable.

Furthermore, Non-profit organizations monitor liquidity indicators mostly in contrast to profitability. We assume that liquidity has a significant impact on the financial status of the organization, because if the organization is not liquid, this situation threatens its daily activities and projects.

Finally, we include non-financial input variables as the legal form and type of non-profit organization. The financial situation of non-profit organizations varies greatly between foundations and non-investment funds. We believe that foundations are less vulnerable because they rely on more donors. Furthermore, in our opinion, commercial (non-profit) organizations are more vulnerable to others because they generally rely on only one key donor.

16. Don’t start a sentence with a number (e.g., “46 observations are also excluded.”).

Done.

17. Please include a correlation table.

We include a correlation matrix.

18. I recommend calculating the condition index as a further check for multicollinearity.

We verified multicollinearity using condition index. The result shows that the condition index is lower than the recommended value (less than 30) according to Kennedy (2003).

Kennedy, P. (2003). A Guide to Econometrics. MIT Press.

19. Please use commas to separate the 000’s place in numerals in the tables.

Done.

20. The headings in Table 18 are too long and are cut off. Please correct this.

Done.

21. The generalizability of the study is an issue. Testing this model on firms from the Slovak Republic only is problematic. At the very least, the authors should verify the validity and replicability of the model on a second dataset from a different country.

The total sample consists of non-profit organizations. Data on non-profit organizations is limited. However, we plan to verify the presented model on a sample from other countries in future research. Unfortunately, we do not have data on financial indicators from other countries. We are currently looking for a relevant database offering data on European non-profit organizations. Our data is obtained from various sources, but most of the data is drawn from the financial statements from the register of financial statements. Unfortunately, these financial statements are in pdf files.

22. Use first, second, third, fourth, fifth and not firstly, secondly, thirdly, fourthly, and fifthly.

Done.

23. Please use the Oxford comma when writing lists of three consecutive items.

Done.

24. The discussion should focus on explaining the significance of the study’s results. Currently, it reads a lot like a literature review. Thus, the authors should move those portions to the Literature Review section.

We removed the introductory words about the position of non-profit organizations in the discussion.

25. The manuscript would benefit from a thorough proofread by an experienced copyeditor due to errors in spelling, grammar, and sentence structure, which detract from readability.

We apologize for the grammatical and other mistakes, we tried to eliminate them in the manuscript.

Academic research is a discussion. I hope that the suggestions that I have made do not discourage the authors, but rather serve to help guide them to improve their manuscript further. Good luck with your research!

Reviewer 4 Report

Thanks to the authors for the opportunity to review their article. Reading it, I really enjoyed it, but in order for the article to be accepted into the journal, a major revision must be made:

1. Please add the purpose of the study and the novelty of the results (1-2 sentences) in the abstract.
2. Please add 3-5 scientific hypotheses of the study and show how they are tested in the results section.
3. Please write the source under each figure and table. If this is the author's work, indicate it.
4. Authors should develop the conclusion. The authors should specify the main theoretical and practical significance of the research.
5. Authors should explain better the academic contribution of the work developed. Highlighting what is innovative/original about the existing literature.
"This paper is novel because iThe calculation confirms the new method effectiveness evaluation. The novelty of the article also consists of a conducted large-scale study describing the author's theoretical and practical prerequisites".
6. English language and style are fine/minor spell check required.

7. The conclusion seems to me rather trivial. What scientific results have been obtained? For what reason was the research done?
8. The reference list does not seem up-to-date enough to me. There is not a single source older than 2018, and now it is the middle of 2021. The current economic situation in the world is very volatile to ignore new research. The above-mentioned raises doubts about the relevance and credibility of the research conducted.
9. For me it remained unclear how the model proposed by the authors was tested and the degree of the author's development of this model. Please elaborate. In addition, please clarify how the proposed model is applicable to non-profit organizations in other countries, or this model is only relevant for your country?
10. Can the issue of financial sustainability of non-profit organizations, in general, be posed in light of the specifics of their funding?

Author Response

REVIEW 4

Comments and Suggestions for Authors

Thanks to the authors for the opportunity to review their article. Reading it, I really enjoyed it, but in order for the article to be accepted into the journal, a major revision must be made:

1. Please add the purpose of the study and the novelty of the results (1-2 sentences) in the abstract.

The main purpose of the article is to create a universal prediction model for all non-profit organizations regardless of economic activity as a starting point for future research in Central Europe using discriminant analysis. This study brings new theoretical and empirical findings in contrast to previous studies. We find that theoretical and empirical evidence on risk management with a focus on nonprofits is limited compared to advanced research on for-profit companies from various industries. These models are created mainly for American non-profit organizations consisting of various significant indicators. However, we are unable to estimate financial vulnerability using these relevant models because the financial statements do not include the administrative costs. We explore a gap in risk management research in Central Europe based previous research. We present a model estimating the financial vulnerability of non-profit organizations. The importance of the model is also emphasized by the growing importance of non-profit organizations in Europe.

2. Please add 3-5 scientific hypotheses of the study and show how they are tested in the results section.

We establish 14 scientific hypotheses about the impact of selected independent variables on the financial status of non-profit organizations. This effect is tested using stepwise methods as one of the two methods in discriminant analysis in SPSS25.

3. Please write the source under each figure and table. If this is the author's work, indicate it.

Done.

4. Authors should develop the conclusion. The authors should specify the main theoretical and practical significance of the research.

This study represents one of the original contributions in the field of predicting the financial status of non-profit organizations for researchers in EU. We propose a universal model for Central Europe. This model is based on a wide range of theoretical and empirical knowledge from renowned authors from around the world. We summarize theoretical knowledge to define definitions of financial vulnerability, potentially significant financial indicators, and statistical methods together with professional experience in risk management. These findings are applied to create a predictive model with excellent performance capabilities based on the classification of enterprises into invulnerable and vulnerable non-profit organizations and ROC curves. In other words, the comprehensive methodology offers an universal model. The advantages of the model lie in the simple calculation and obviously the interpretability. The model helps in making donation decisions from donors and contributors.

5. Authors should explain better the academic contribution of the work developed. Highlighting what is innovative/original about the existing literature.

We believe that the paper is basic pillar as starting study for non-profit sector in Central Europe as opposed to the for-profit sector. The value added represent new theoretical and empirical knowledge for future research in risk management.

6. "This paper is novel because the calculation confirms the new method effectiveness evaluation. The novelty of the article also consists of a conducted large-scale study describing the author's theoretical and practical prerequisites".

Thank you.

7. English language and style are fine/minor spell check required.

8. The conclusion seems to me rather trivial. What scientific results have been obtained? For what reason was the research done?

The main reason for creating a prediction model is mainly related to filling the gap in the research of non-profit organizations in Central Europe. The results show that a vulnerable non-profit organization is characterized by high indebtedness and a high share of subsidies from state and regional institutions in total revenues. We found that non-profit organizations should rely more on each other than on other entities. Based on descriptive statistics, we find that many non-profit organizations rely on contributions from taxes paid, but this indicator is not a statistically significant variable in the model using discriminatory analysis. In addition, many non-profit organizations achieve very low self-financing rates. Finally, the high debt ratio has a negative impact on the financial vulnerability of non-profit organizations. Although banks are reluctant to lend to organizations due to volatile revenues. In other words, non-profit organizations are highly dependent on public and for-profit organizations providing contributions to ensure day-to-day operations.

9. The reference list does not seem up-to-date enough to me. There is not a single source older than 2018, and now it is the middle of 2021. The current economic situation in the world is very volatile to ignore new research. The above-mentioned raises doubts about the relevance and credibility of the research conducted.

The issue of predicting financial vulnerability in the non-profit sector is rare in contrast to the for-profit sector. Nevertheless, we tried to select theoretical and empirical knowledge from relevant authors from this period.

Fedele, A., Miniaci, R., & Tortia, E. (2021). Strong client orientation, little leverage in nonprofit firms? Strong client orientation, little leverage in nonprofit firms? doi:10.1007/s11187-020-00438-5

Garcia-Rodriguez, I., Romero-Merino, E., & Santamaria-Mariscal, M. (2021). The role of boards in the financial vulnerability of nonprofit organizations. Financial accountability & management, 37(3), 237-261. doi:10.1111/faam.12269

Hung, C., & Hager, M. (2019). The Impact of Revenue Diversification on Nonprofit Financial Health: A Meta-analysis. Nonprofit and voluntary sector quarterly, 48(1), 5-27. doi:10.1177/0899764018807080

Lu, J., Lin, W., & Wang, Q. (2019). Does a More Diversified Revenue Structure Lead to Greater Financial Capacity and Less Vulnerability in Nonprofit Organizations? A Bibliometric and Meta-Analysis. Voluntas, 30(3), 593-609. doi:10.1007/s11266-019-00093-9

Searing, E. (2018). Determinants of the recovery of financially distressed nonprofits. Nonprofit management & leadership, 28(3), 313-328. doi:10.1002/nml.21296

10. For me it remained unclear how the model proposed by the authors was tested and the degree of the author's development of this model. Please elaborate. In addition, please clarify how the proposed model is applicable to non-profit organizations in other countries, or this model is only relevant for your country?

The results of the discrimination analysis based on the “stepwise method” achieve better results compared to “enter independents together”.

The issue of risk management is demanding on dataset on accounting and financial variables based balance and income statements. The model is relevant for nonprofit sector in the Slovak Republic.

In future research, we can verify the model on a sample of non-profit organizations from other countries in Central Europe. However, we do not currently have access to a relevant sample of non-profit organizations using international databases, most of the data on non-profit organizations is obtained from a regional database from Finstat (2019). We believe that non-profit organizations, like for-profit organizations, will be the object of interest.

This model is relevant for the non-profit sector in the Slovak Republic, because performance metrics show good results. Our goal is to create a reliable model for estimating the probability of financial vulnerability based on the division of the initial sample into a training and test sub-sample.

11. Can the issue of financial sustainability of non-profit organizations, in general, be posed in light of the specifics of their funding?

The financial sustainability of non-profit organizations can be assessed in relation to diversification and concentration strategies. The results show that the concentration of revenues is dangerous due to the share of subsidies in total revenues. It is clear that if a non-profit organization relies exclusively on contributions from state and regional institutions together with external sources, the risk of financial vulnerability increases.

Some research focuses on funding non-profit organizations to support multi-source funding to ensure day-to-day operations. These steps reduce the rate of revenue concentration and encourage the diversification of total contributions from multiple donors and contributors. However, our results show the rate of revenue concentration according to the HHI index does not have a statistically significant impact on the financial status of Slovak non-profit organizations.

Round 2

Reviewer 1 Report

Dear authors,
I noticed that some of your answers just contradicted what I asked without introducing or modifying anything. If the authors think that you are right, I can reject the article and get along with the editor. Otherwise, take a look at the responses to my review, which I made with all due care and scientific knowledge.
I'll give as an example what I told you regarding section 3: descriptive statistics are not exactly a result because they only describe the sample under study and it is much better in the methodology. It is in the methodology that we say how we are going to do the study and what kind of sample we are going to study as well as its characteristics.
I hope that in the next review you can attend, without apologies, to the review I proposed.
I consider myself a good reviewer, otherwise MDPI would not have entrusted me with more than 100 articles to review.
Best Regards and Pleasant Work 

Author Response

We included your and other recommendations from other reviews except for reallocating the descriptive statistics in the article. We explained the innovation and estimation method used in Table 11. The innovation of the research represents proposed prediction model of financial status for the Slovak nonprofit sector. The results of research show that the financial status of non-profit organizations depends mainly on debt ratio and the share of subsidies in total revenues on the based publicly available financial statements on Slovak non-profit organizations. The model shows that non-profit organizations should not rely on contributions from the national or regional level. In other words, non-profit organizations should diversify their revenue structure mainly through self-financing. Moreover, the added value is the summary of theoretical and empirical knowledges from previous research. We find that theoretical and empirical evidence on risk management with a focus on non-profit organizations is limited compared to advanced research on companies from various industries. These studies assess the financial vulnerability of Americans as opposed to European nonprofit organizations. We find the gap in research in risk management in Central Europe based on research literature analysis. However, we are unable to estimate financial vulnerability using these relevant models because the financial statements do not include the administrative costs. The advantage of the proposed model is applicability, as the models presented from previous papers are not applicable due to the limited data on administrative costs in the financial statements. These results can contribute to the development of non-profit financial management in Central Europe. The prediction of the financial status of nonprofit organizations is unique issue in contrast to the for-profit sector in Central Europe. Moreover, we justify the use of data from 2017 due to the limited availability of financial statements of non-profit organizations. This sample is collected from several sources, mainly from pdf files.

Reviewer 2 Report

Dear authors,

The work has improved considerably. Just one thing. The paragraph that contains the structure of the paper in the introduction (lines 52 to 54) must be the last of the introduction.

Congratulations,

Author Response

Thank you.  

This part of the article is removed based on the recommendation of another reviewer.

Reviewer 3 Report

Thank you for the opportunity to review your manuscript entitled “Prediction Model as Sustainability tool for Assessing Financial Status of Non-Profit Organizations in the Slovak Republic” again. I found it improved over the previous version of the manuscript. I hope that the comments that I have made prove to be constructive and help the authors further refine their manuscript.

1. The authors state “In the past, there were instances of unfair financing on the American and European continents, but especially the poor financial management of the non-profit organizations.” You should substantiate this claim with references or a specific example.
2. Remove “The paper consists of six sections, such as introduction, literature review, methodology, results, discussion, and conclusions. We believe that this research represents an important milestone in the study of non-profit organizations in Central Europe” as this does not substantially add to the manuscript.
3. There are several things you can do to convey more clearly how the paper is breaking new theoretical ground compared to prior studies. The first one is to increase the focus and coherence of the arguments presented in the introduction. Furthermore, it is hard to evaluate the significance and magnitude of your intended contribution compared to what is already know in the research areas you refer to. A universal tool that applies to Central Europe is not a universal tool. You would have to demonstrate that this tool works in other contexts.
4. This statement: “We explain non-profit organizations as private entities not focused on making a profit. The goal of these organizations is not to make a profit, but to help people in need in particular. If the non-profit organization generates a profit, this profit is reinvested again.” is fundamentally wrong. Non-profits have to make a profit (meaning their revenue must be greater than their expenses) otherwise they will be out of business. This is a common mistake that my freshman business students make. The difference between for-profit and non-profit lies in how they generate revenue and the fact that non-profits cannot have shareholders. You need to get this straight.
5. Remove binary logistic regression from this question: “Based on the scientific question: “Which quantitative and qualitative variables are considered statistically significant in the estimation of the financial status of non-profit organizations through binary logistic regression?” You would never include the method as part of the research question.
6. Report numbers with decimal places in the correlation table using a period, not a comma.
7. You have a multicollinearity issue. You have several high correlations (0.87, 0.798, 0.706) in your correlation table. Furthermore, a condition number between 10 and 30 indicates the presence of multicollinearity. The condition index should be less than 15, not 30. Multicollinearity is a problem because it undermines the statistical significance of an independent variable. Multicollinearity is a problem because it can increase the variance of the coefficient estimates and make the estimates very sensitive to minor changes in the model. The result is that the coefficient estimates are unstable and difficult to interpret. The bottom line is that your current model is flawed and, thus, your results are questionable.
8. The manuscript would benefit from a thorough proofread by an experienced copyeditor due to errors in spelling, grammar, and sentence structure, which detract from readability.

Academic research is a discussion. I hope that the suggestions that I have made do not discourage the authors, but rather serve to help guide them to improve their manuscript further.

Author Response

We included recommendations from the review.

Reviewer 4 Report

Thanks to the authors for revising the article. I recommend it for publication in present form.

Author Response

Thank you.