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Assessing the Financial Failure Using Z-Score and Current Ratio: A Case of Sugar Sector Listed Companies of Karachi Stock Exchange

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  • Ijaz, Muhammad Shahzad
  • Hunjra, Ahmed Imran
  • Hameed, Zahid
  • Maqbool, Adnan
  • Azam, Rauf i

Abstract

Since 1968, after the development of multivariate model, financial health of the corporate sector to predict their financial failure is heavily studied. Altman Z-Score is the most efficient model to judge the financial failure of the companies. This study uses Altman’s Z-Score and current ratio to assess the financial status of sugar sector companies listed at Karachi stock exchange. Sugar sector is the second largest slice among all sectors listed at Karachi stock exchange. Total population sampling technique was used in this study and all thirty five sugar sector listed companies at KSE were included in this study to get the deep insights of the issue. State bank’s balance sheet analysis and companies’ financial reports were used to compile the data for the years 2009 and 2010. The results of the study showed that current ratio and Altman’s Z-Score are the reliable tool of assessing financial health of sugar sector listed companies of Karachi stock exchange. This study further explores that there are financially distressed companies among sugar sector listed companies.

Suggested Citation

  • Ijaz, Muhammad Shahzad & Hunjra, Ahmed Imran & Hameed, Zahid & Maqbool, Adnan & Azam, Rauf i, 2013. "Assessing the Financial Failure Using Z-Score and Current Ratio: A Case of Sugar Sector Listed Companies of Karachi Stock Exchange," MPRA Paper 60787, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60787
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    References listed on IDEAS

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    1. Cowen, Scott S. & Hoffer, Jeffrey A., 1982. "Usefulness of financial ratios in a single industry," Journal of Business Research, Elsevier, vol. 10(1), pages 103-118, March.
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    3. Terry J. Ward & Benjamin P. Foster, 1997. "A Note on Selecting a Response Measure for Financial Distress," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(6), pages 869-879, July.
    4. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    5. Young-Won Her & Chongwoo Choe, 1999. "A Comparative Study of Australian and Korean Accounting Data in Business Failure Prediction Models," Working Papers 1999.07, School of Economics, La Trobe University.
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    8. Terry J. Ward & Benjamin P. Foster, 1997. "A Note on Selecting a Response Measure for Financial Distress," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(6), pages 869-879.
    9. Abdul RASHID & Qaiser ABBAS, 2011. "Predicting Bankruptcy in Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(9(562)), pages 103-128, September.
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    Cited by:

    1. Minhas Akbar & Ahsan Akbar & Petra Maresova & Minghui Yang & Hafiz Muhammad Arshad, 2020. "Unraveling the Bankruptcy Risk‒Return Paradox across the Corporate Life Cycle," Sustainability, MDPI, vol. 12(9), pages 1-19, April.
    2. Javed Iqbal & Furrukh Bashir & Rashid Ahmad & Hina Arshad, 2022. "Predicting Bankruptcy through Neural Network:Case of PSX Listed Companies," iRASD Journal of Management, International Research Alliance for Sustainable Development (iRASD), vol. 4(2), pages 299-315, june.
    3. Hamid Waqas & Rohani Md-Rus, 2018. "Predicting financial distress: Applicability of O-score model for Pakistani firms," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(2), pages 389-401, April.
    4. Sufian Al-Manaseer & Suleiman Al-Oshaibat, 2018. "Validity of Altman Z-Score Model to Predict Financial Failure: Evidence From Jordan," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(8), pages 181-181, August.
    5. Sumaira Ashraf & Elisabete G. S. Félix & Zélia Serrasqueiro, 2019. "Do Traditional Financial Distress Prediction Models Predict the Early Warning Signs of Financial Distress?," JRFM, MDPI, vol. 12(2), pages 1-17, April.

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    More about this item

    Keywords

    current ratio; Z-Score; Karachi stock exchange; financial failure;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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