This document discusses corporate failure and methods for predicting and preventing it. It defines corporate failure as a company closing due to inability to profit and sustain costs. There are two types of corporate failure models: quantitative and qualitative. The document specifically discusses Altman's Z-score model, which uses five financial ratios to determine a score and predict if a company is in the "safe", "grey", or "distress" zone. Finally, it lists ten commandments for companies to follow to avoid failure, such as having a strategy, controls, board participation, and keeping informed of changes.

1. Welcome

2. Course Instructor
Md. Kamruzzaman
Lecturer, Strategic Management Accounting
Green University of Bangladesh (GUB)
Department of Business Administration (DBA)

3. Md. Moazzem Hossain
ID. 110106034

4. Presentation
on
Chapter – 14 :
Predicting and Preventing Corporate Failure.

5. Corporate failure is the process of a
company closing due to their inability to
make a profit to sustain their own costs.
When the economy is bad there are many
examples of corporate failure that can be
see and felt.
What Is Corporate Failure?

6. Corporate Failure Model
There are two (2) types of
corporate failure model –
1) Quantitative Model.
2)Qualitative Model.

7. Z score
An indicator used in data analysis which
measures how far a given data point is from the
mean of the data. Z-scores are often used to
analyze credit, and will give an estimation of the
probability of going bankrupt.
• Usage Example
By determining the z-score of something,
statisticians are able to decide if the score is
typical or not for that data by calculating how far
it differs from the mean.

8. Altman’s Z score
• X1 = Working Capital / Total Assets
• X2 = Retained Earnings / Total Assets
• X3 = Profit Before Interest Tax / Total Assets
• X4 = Market Value of Equity / Book Value of
Debt
• X5 = Sales/ Total Assets

9. Altman’s Z score
• Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1X5
Zones of Discrimination
• Z > 2.99 “Safe” Zones
• 1.8 < Z < 2.99 “Grey” Zones
• Z < 1.80 “Distress” Zones

10. Avoiding Failure:
1) You must have a strategy.
2) You must have controls.
3) The board must participate.
4) You must avoid one-man rule
5) There must be management in depth.
Ross and Kami listed “Ten Commandments” that
should be followed by a company to avoid failure -

11. Avoiding Failure:
Ross and Kami listed “Ten Commandments” that
should be followed by a company to avoid failure -
6) Keep informed of, and react to, change.
7) The customer is king.
8) Do not misuse computers.
9) Do not manipulate your computers.
10) Organize to meet employees needs.

12. Any Question???

13. Thank You…