Bankruptcy Prediction Model (Altman)

Altman (1968) had devised a Z-score formula for predicting bankruptcy where:

Z=0.012X₁ + 0.014X₂ + 0.033X₃ + 0.006X₄ + 0.999X₅

X₁ = (current assets-current liabilities) / total assets (in % points) Measure of liquid assets

X_{2 = retained earnings / total assets (in % points) Measure of profitability}

X_{3 = earnings before interest and taxes / total assets (in % points) Measure of operating efficiency}

X_{4 = market value of equity / total liabilities (in % points)}

X_{5 = sales / total assets (in % points) Measure of total asset turnover}

Z- Score Zones:

 Z > 2.99 - "safe" zone

 1.81 < z < 2.99 - "grey" zone

 Z< 1.81 - "distress" zone

Requirements:

1. Test Altman's Z- score for a firm of your choice (For example: JCP filed for bankruptcy in 2020) to test its prediction for bankruptcy.
2. Use any database to download data for last 5 or 10 years in excel, quarterly or annual values, as you need sufficient number data points to be able to see the trend in Z-score values
3. Use Altman Z score calculator.
4. Review of your finding as a brief word document