Insolvency Risk. Application of Altman Z-Score to the Auto Parts Sector in Romania

Abstract

This paper intends to apply the Altman Z-score model to all the companies active in the wholesale of motor vehicle parts and accessories (NACE 4531), with extended financial statements. Using the panel data model over the time series for 2008-2016 on the companies of this sector, we conclude that 99% of the Z-score is explained by the independent variables (working capital, capital structure, turnover, earnings before interest and tax), with estimated parameters very close to the model`s classical values. The sample description of the paper and the corresponding results highlight the Z-score evolution by turnover clusters and principal components, with the largest companies performing the best (the only cluster with Z-score median above 3). We notice a tendency for decreasing high-risk companies and increase in the medium risk companies, whereas the low-risk companies are relatively stable. This improvement is mostly due to the increasing capitalization rate and less external debt, despite the deteriorating working capital and operating margin. We believe that future research to evaluate Z-score sensitivity under stress test scenarios would be very useful to provide an insight into companies’ insolvency risk amid increasing interest rates and different fiscal tax on dividends.

Predictive Analysis of Financial Distress in Pharma Sector: A Quantitative Approach using Altman’s Z-Score Model

“…For instance, Numerous researchers (Islam & Fakir, 2023;Puspita et al, 2023;Ramana et al, 2023;Nimbalkar & Marisetty, 2022) have utilized Altman's Z-Score model to forecast financial distress within the cement industry across various countries, yielding diverse research outcomes. Several researchers (Rahman & Acharya, 2022;Sareen & Sharma, 2022;Swalih et al, 2021;Baciu et al, 2020) have applied Altman's Z-Score model to predict financial distress within the automobile industry across different regions, each offering unique insights and findings. Researchers (Goh et al, 2022;Lestari et al, 2021;Lewaru & Loupatty, 2021) have shown considerable interest in using Altman's Z-Score model to assess the financial health of the tourism and hospitality industry in different regions, unveiling a spectrum of outcomes.…”