Considering the utility of Altman's Z‐score as a strategic assessment and performance management tool

Abstract

ven though the ''metrics wars'' of the past decade have subsided [1], corporate strategists remain avidly interested in effective new performance management tools and techniques. Given the ongoing popularity of the subject, and how well covered it has been in both the practical and academic literature, it is impressive that authors Robert B. Carton and Charles W. Hofer offer fresh insights in their new book Measuring Organizational Performance -Metrics for Entrepreneurship and Strategic Management Research (Northampton, MA: Edward Elgar, 2006). Because this work is aimed only at academicians it will likely not receive widespread attention from business practitioners. This is unfortunate because the book contains a number of findings -especially the results of their research into performance measurement models -that deserve the attention of corporate leaders as well as their academic allies.

Measuring Investors’ Reaction to the Adoption of International Financial Reporting Standards in Greece, Using a Market-Based Model

“…Nevertheless, it is worth to observed that the arithmetic mean both for International Accounting Standards and Greek accounting is statistically the same as the Table 5 highlights, 2 tailed significance level over 0,05. Moreover, bearing in mind the Altman's threshold for the prediction of bankruptcy, where the results of z-score can be interpreted as (Calandro, 2007): The first statistical term that should have been examined was the r 2 . Table 6 presents the first results of the regression model.…”

Predicting Bankruptcy: Evidence from Israel

“…Over the past decade, the Z-score models were used as a proxy for bankruptcy risks in such areas as strategic planning (Calandro, 2007), investment decisions (Sudarsanam and Lai, 2001;Lawson, 2008), asset pricing (Griffin and Lemmon, 2002;Ferguson and Shockley, 2003), capital structure (Allayannis et al, 2003;Molina, 2005), credit risk pricing (Kao, 2000;Jayadev, 2006), distressed securities (Altman, 2002: ch. 22;Marchesini et al, 2004) and going-concern research (Citron and Taffler, 2004;Taffler et al, 2004).…”

Essay on Building Performance Management for Family Business Company based in Kuwait

“…Calandro [5] stated that the fraud metric, Altman's Z-score could be a good source for analyzing financial performance of an organization. The finance and account teams in Ashraf can use this model to see if the firm is in distress or not.…”

“…The Z-score model has been a well-accepted financial distress model for almost four decades, and influential in areas such as credit risk analysis, merger and acquistion target analysis, and turnaround management. Since, Ashraf is a private firm, the Z-score modified formula is: Z=6.56X1 + 3.26X2 + 6.72X3 + 1.05X4, where X1=working capital/total assets; X2=retained earnings/total assets; X3=earnings before interest and taxes/total assets; and X4=net worth/ total liabilities [5]. The criteria used to interpret the revised model are: Safe Zone=Z >2.60; Distress Zone=Z <1.10; and Grey Zone=1:10 <=Z <=2.60.…”