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Evaluation of Financial Distress: A Case Study of UCHUMI Supermarket Ltd

Author

Listed:
  • Waita
  • M. Gichaiya
  • Mwasa
  • D. Ishmail

Abstract

There exists no conclusive agreement on which financial ratio(s) are most appropriate to assess the likelihood of financial distress and the successful turnaround strategies of recovering firms. This study evaluates financial health in Uchumi supermarket limited by testing whether Altman’s Z score model is accurate in predicting corporate financial distress for a study period of 2003 to 2012. The company was selected because of its historical record of financial difficulties in the mid 2000s that led to its receivership in June 2006 and its current recovery to profitability. Analytical formulas in Altman’s model were applied on the financial statements. The results reveal that the model is accurate with Z values reflecting a distress zone especially in the period under receivership and a grey zone in 2012 which is an alarming matter that may lead to corporate bankruptcy in near future unless corrective measures are undertaken.

Suggested Citation

  • Waita & M. Gichaiya & Mwasa & D. Ishmail, 2014. "Evaluation of Financial Distress: A Case Study of UCHUMI Supermarket Ltd," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 3(3), pages 178-183.
    • Handle: RePEc:rss:jnljfe:v3i3p6
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    References listed on IDEAS

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    1. Beaver, Wh, 1968. "Information Content Of Annual Earnings Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 6, pages 67-92.
    2. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    3. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    4. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure - Reply," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 123-127.
    5. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 71-111.
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