Evaluating Financial Sustainability and Risk Management: Critical Analysis and Factor Modeling

Abstract

The intricate nature of today's business and the unpredictability of global market events underscore the significance of financial risk management and the pressing need for strong and efficient financial sustainability metrics to reduce risk, strengthen the organization's resilience to such financial shocks, and assist managers and investors in making decisions. The review examines key financial theories, measurement approaches, and relevant outcomes. By using data from Indian companies in industries such as oil and gas and heavy machinery (2009–2023), this research highlights inadequacies, including the absence of a common definition and measurement technique for financial sustainability, and suggests a financial sustainability index based on factor analysis and principal component analysis (PCA). The findings provide information for risk management and decision-making, with three main components—financial health, liquidity/leverage, and profitability efficiency explaining 81% of the variance. To improve long-term sustainability, additional investigation directions and useful implications for investors and managers are recommended.