Analysis of Financial Health of Selected Indian Companies
Author : Dr. Manjulaben Gordhanbhai Patel
Abstract :
Financial ill-health is characterized by yields of bonds lower than the risk free interest rate and significant difficulties in obtaining additional external financing. Financial distress is seen as an intermediate state between solvency and insolvency. Financial distress leads to a loss of market share, damages customer confidence, can lead to large layoffs and cause conflicts with the firm’s stakeholders. A company in financial distress has the choice to restructure its debt and reach an appropriate level of solvency, to merge and, thus, disappear as an independent business entity, or to file for bankruptcy as a strategic response by the management or owners to financial problems.
Financial distress is defined as an inability of the company to meet its current financial obligations. High leverage situation of enterprises constitute the core of the financial distress problem to predict the financial soundness of a business, financial ratios are a key indicator. Financial ratios are a tool to determine the operational & financial efficiency of business enterprises. Altman developed a z-score model using ratios as its foundation. With the help of the Z-Score model, Altman could predict financial efficiency/distress up to 2-3 years in advance. This research paper attempts to predict financial distress of selected Indian enterprises by using Altman’s Z-Score revised model for the period of three years i.e. from 2019-20 to 2021-22.
Keywords :
Business failure, bankruptcy, Altman’s Z-score model, financial ratios
