Application of Altman’s Z-Score Model in Predicting Financial Distress of the Ceramic Industry: Evidence from Bangladesh

Abstract

The purpose of this paper is to predict the financial position and possibility of the ceramic industry in Bangladesh. This paper uses Altman’s Original Z-Score model for predicting the financial status of the companies. The study begins with a literature review of secondary data from articles, annual reports, periodicals, newspapers, and previous research papers, and the data was collected from the industry’s annual reports published on their websites. It investigated a total of 60 annual reports during the twelve years of the five ceramic industries namely; RAK, Shinepukur, Monno, Standard, and Fu-Wang ceramic which are listed in the Dhaka and Chittagong Stock Exchange Limited. The results showed that RAK, Fu-Wang, and Standard ceramics had a mean score greater than 2.99(safe zone) in about (75%), (41.67%), and (25%) of the year respectively. Among them, the rest of the two companies failed to reach the safe zone. On the other hand, in the grey area, the highest rate was 66.67% with Monno, and Standard ceramics at 50%. In contrast, the lowest rate was in the RAK ceramics. The percentage in the grey area denotes the moderate financial position of a company. Interestingly, the highest score in the distress zone was 33.33% with Shinepukur. And in none of the years, has Shinepukur reached the safe zone. In the distress area, RAK had the lowest rate 16.67% among the five companies. Overall, in total, 28.33% of the year, Z-score reached the safe zone, of which 37% had in the Grey Zone, and 34.6% had in the distress zone.