Z-Score Analysis – A Tool to Predict Financial Health

Abstract

This paper analyses whether Altman Z-score models, can predict correctly company failures. The empirical analysis examines all listed in the National Stock Exchange companies, during the period 2003-2009 and discontinuations of operation for these companies during the same period. It is investigated whether Z-score models can predict bankruptcies for a period up to three years earlier. Our study shows that Altman model performs well in predicting failures. This is in line with other findings. The empirical results are interesting since they can be used by company management for financing decisions, by regulatory authorities and by portfolio managers in stock selection.

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