Bankruptcy models are a common tool of nancial analysis to predict the nancial distress of companies. However, in the recent years, the instability and risk of the overall economic environment have underlined the need for accurate tools to predict bankruptcy and assess the overall performance of companies. In this article, we analyze the ex-ante predictive ability of selected bankruptcy and solvency models commonly used in nancial analysis: Kralicek quick test, Taf er model, the IN99 and IN05 indexes, and Altman Z'-score models in the case of Czech companies from 2007 to 2012. We determined the percentage of cases when these models correctly predicted failures of companies up to ve years in advance, and found that the IN05 and IN99 credibility indexes provided the best results, as well as the Altman Z'-score model. However, the predictive ability of the Taf er model and Kralicek quicktest has only been limited.
JEL classi cation: G30, G33Keywords: bankruptcy prediction; Altman Z'-score; Taf
Altman Z'-Score modelPerhaps the most famous model is the Altman Z-Score which was originally published in 1968 (Altman, 1968) and further modi ed to better re ect particular operating conditions. The model is based on discriminate analysis. The Altman Z'-score for private rms can be speci ed as:where T 1 is the ratio of net working capital (current assets less current liabilities) over total assets, T 2 is the ratio of retained earnings over total assets, T 3 is the ratio of earnings before interest and taxes (EBIT) over total assets, T 4 is the ratio of equity over total liabilities and T 5 is the asset turnover (sales over total assets). According to the resulting value of the Z'-score, companies can be classi ed into the following groups:
Kralicek Quick TestThe quick test developed by Kralicek (1991) which was further modi ed in 1999 is an example of "solvency models" and evaluates the company's nancial and revenue position.It takes into account multiple nancial ratios and assigns the following scores according to the resulting values (table 2).The following aspects of a company's position are then evaluated:Financial stability: (X 1 + X 2 ) / 2 Revenue position: (X 3 + X 4 ) / 2 Overall position: (Financial stability + Revenue position) / 2
Taffl er ModelThe Taf er model developed by Taf er and Tisshaw (1997) is based on calculating the following score:where T 1 denotes earnings before taxes (EBT) over short-term liabilities, T 2 denotes current assets over total liabilities, T 3 denotes short-term liabilities over total assets and T 4 denotes the asset turnover (sales over assets). According to the resulting value of the nal score, companies can be classi ed into the following groups: Companies with a lower probability of bankruptcyCompanies with a higher probability of bankruptcy where T 1 denotes assets over liabilities, T 2 denotes EBIT over assets, T 3 denotes revenue over assets and T 4 is the ratio of current assets over the sum of short-term liabilities and short-term bank loans.IN05 can be calculated as:wher...
