Altman Z-score in CEE region - Useful tool or outdated theory?

Ing. Marcell Heisz

Master's thesis

Abstract:

The theoretical part of the Diploma Thesis is a summary of researches in the topic of Altman Z-score and a historical overview of the developed bankruptcy forecasting models. The starting point was the theory of bankruptcy predictions, which are clearly the most widespread financial predictive models. By having summarized the bankruptcy models, the Thesis was focusing mainly on the applied methodology. Based on these researches the historical trends of the methodological evolution of the bankruptcy forecasting models and defined the historical stages of the development have drawn up. Several analyses are explained, applying three modeling methods: decision trees, logistic regression and neural networks. The model Altman Z-score was evaluated by testing on companies in the recent economic environment in the CEE region. The result is that Altman Z-score model cannot be used as a relevant bankruptcy forecasting model in the current times. Further results of the analyses were the identification of the model’s failures and the possible directions of the improvements. The results of this Thesis can be applied directly in credit activities of companies, whereas the synthesis of the methodological evolution of bankruptcy modeling and the testing of Altman Z-score have added value to the theory and to the practice of bankruptcy modeling, inspiring further researches.

Keywords

Accountancy, Altman, Bankruptcy, Finance, Forecasting model, Indicators, Insolvency, Usability, Z-score.

Language used: English

Date on which the thesis was submitted / produced: 27. 4. 2015

Thesis defence

• Date of defence: 18. 6. 2015
• Supervisor: Ing. Kateřina Kalinová
• Reader: MBA Jaromír Stemberg

University of Finance and Administration

Master programme / field:
Economics and Management / Business Management and Corporate Finance