Predicting Bankruptcy: The Altman Z-Score Model, a Multi-Purpose Tool That Requires Cautious Use

Although businesses may have varying purposes, the main objective is the same for all of them and it is simply avoiding bankruptcy. Since a company’s bankruptcy is critical for not only its stakeholders but also for the oth- er parties such as its suppliers and creditors, the ability to diagnose the problems of a company in advance is a very valuable asset. The models that provide the ability to predict bankruptcy are important from the national economy perspective as well, since the employment of them is a precondition for guaranteeing the soundness and stability of the banking system and paving the way for incentive compatible, risk sensitive behaviour of debtors.