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Which Altman Model Do We Actually Use?


  • Miroslava Dolejšová

    () (Tomas Bata University in Zlín)


The aim of this paper is to critically evaluate the terms that are described by various authors in Czech literature, compare those terms with the terms used by the original Altman model, use data from selected enterprises to show whether enterprises could be considered at risk of bankruptcy due to such inaccuracies and verify whether the average Z-score values for small enterprises within the Zlín Region are greater than 3. The data were analysed using a one-sample t-test and the Altman model for enterprises that are not publicly-traded. Financial statements for 2007 through 2011 were used in the data analysis. The one-sample t-test showed that the sample of 32 small enterprises from the Zlín Region had good financial health. The largest percentage change that was associated with a decline in performance was demonstrated when adding net profit to retained earnings (-16.64%). The largest percentage change that was associated with an improvement in performance was demonstrated when using current assets instead of working capital (33.07%). Replacing retained earnings with net profit reduced the enterprise’s performance (a percentage change of -24.43%). Adding funds from profit and net profit to retained earnings reduced performance by 0.17 percentage points. We recommend using net working capital to calculate the X1 ratio. Retained earnings should be used to calculate the X2 ratio. Only sales should be used to calculate the X5 ratio. For manufacturing enterprises that are not publicly-traded, we recommend using equation (8). Publicly-traded enterprises may use equation (2). Enterprises that provide services and enterprises in emerging markets may use equation (4).

Suggested Citation

  • Miroslava Dolejšová, 2014. "Which Altman Model Do We Actually Use?," Acta Universitatis Bohemiae Meridionales, University of South Bohemia in Ceske Budejovice, vol. 17(2), pages 103-111.
  • Handle: RePEc:boh:actaub:v:17:y:2014:i:2:p:103-111

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    References listed on IDEAS

    1. Grice, John Stephen & Ingram, Robert W., 2001. "Tests of the generalizability of Altman's bankruptcy prediction model," Journal of Business Research, Elsevier, vol. 54(1), pages 53-61, October.
    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.
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    More about this item


    Prediction of bankruptcy; Altman model; Misinterpretation; small enterprises; one-sample t-test;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access


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