Determining Financial Distress With the Help of the Altman Z-Score Model

Abstract

Financial distress is a condition in which a company faces financial difficulties where its cash flows cannot meet its current obligations, such as trade payables or interest costs. Financial distress is the stages of deterioration in the financial condition of a company before bankruptcy or liquidation occurs. In this case, management cannot monitor the financial condition of the company, which causes increased business risk. Financial distress usually emerges with increasing liquidity pressures and then continues in the form of diminishing assets, the inability of the company to meet its financial obligations and dragging the company into bankruptcy. Considering the previous studies in the literature; many factors such as the size of the data used in the detection of financial distress, the type of sector from which it is obtained, the economic structure of the country affect the degree of success of the models. From this point of view, the main purpose of the study is to determine the financial failure degrees of the companies under the chemical, pharmaceutical, petroleum, rubber and plastic products sector classification, whose shares are traded in Borsa Istanbul. In this context, the Z Score Model developed by Altman was used. According to the results obtained from the study, most of the enterprises are either in the risky zone or in the gray zone for the studied 3-year period.