Possibility of Altman Z-model to predict corporate financial difficulties of Russian companies
In the article, the author considers the problems of the widespread use of the Altman bankruptcy formula known as the “Z-model” in corporate practice and aims to test its practicality on the basis of Russian companies. To do this, a definition of financial distress is adopted, which summarizes the weaknesses of enterprises, due, in particular, to a liquidity leak and operational losses (losses). The test compares three variants of the Z-model and evaluates their ability to predict using a data set of enterprises. Both the original 1968 Z-model and the 1983 revised Z-model, designed for the US economic environment, are compared with the Z-model, calculated on the data of Russian companies copying the Altman methodological procedure. The results show that Altman's bankruptcy formula is easily transferred to the economic conditions of the Russian Federation and is useful for predicting financial difficulties taking into account the accepted definition of financial distress. The original and (mainly) revised formulation of the Altman Z-model is preferable if the general accuracy of the classification is of primary interest. Finally, if the focus is on financially unsuccessful enterprises and the task is to classify unsuccessful enterprises as best as possible, it is advisable to revise the coefficients of the Z-model. Altman’s Z-model was developed almost half a century ago, it is still found and regularly used in many business situations that cover (include) corporate financial analysis conducted by enterprises with the aim of making managerial decisions. The “Z-model” has found application in various fields of finance, where knowledge of the future financial condition of an enterprise is perceived as vital.