An application of Altman's Z-score on selected real estate firms in the Philippines from 1995 to 2005

Date of Publication

2006

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Commerce Major in Management of Financial Institutions

Subject Categories

Finance and Financial Management

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Lawrence T. Co

Defense Panel Chair

Ma. Esperanza F. Joven

Defense Panel Member

Raymund L. Suarez
Jose L. Ocampo

Abstract/Summary

Bankruptcy is defined in this study as a state of insolvency wherein a firm has already stopped its operations. Altman's Z-score model was a product of trying to find a way to predict if a firm is going to be bankrupt in one or two years time for public manufacturing firms, thus the model was created to help managers predict bankruptcy to aid them in their respective decision making. Later on, the model was modified to cater to other industries then came about the Altman model B Z-score that predicts a private non manufacturing firm's financial condition in one and two year's time. In this study, the proponents applied the Altman model B Z-score in the Philippine setting. The proponent's main objective of the study is to find out how applicable Altman model B Z-score for Philippine real estate firms.

The proponents' method was patterned Altman's procedures. The proponents came up with a sample size of 66 firms wherein 33 of those firms were bankrupt and the other 33 firms were not bankrupt for the respective time periods. The financial statements of these firms were obtained by the group from the Securities and Exchange Commissions (SEC). From the given financial statements, the group extracted the accounts needed to run the Z-score. After running the model, the group had derived the Z-scores of each firm and identified them through the predetermined cut-offs given by Altman. Then the group compared the Z-score's results to the actual financial condition of each firm. Lastly, the group got the accuracy rating of the model B Z-score by dividing the correct classifications firm by the sample size to get the accuracy percentage.

As a result of the proponent's study, the group found out that the accuracy rate of predicting whether a firm is going to be bankrupt one year prior to its financial condition is only 68.2% as compared to Altman's 95% accuracy rate. And the accuracy rate of predicting whether a frim will be bankrupt two years prior to its financial condition is only 60.60% as compared to Altman's 83%. So the proponents conclude that the Altman model B Z-score is not applicable in the Philippine real estate firms contrary to Altman's previous applications.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU21894

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

35, [15] leaves

Keywords

Financial institutions--Management

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