A comparative analysis of Sloan accrual measure, Altman Z-score, Piotroski F-score and financial liquidity ratio as indicators of financial distress in publicly-listed firms in the Philippines from 2000-2014

• Main Authors: Bunagan, Janelle Christie C., Campos, Grayzxiel Yvoi M., Corporal, Jan Derick V., David, Bianca Mae Y.
• Format: text
• Language: English
• Published: Animo Repository 2015
• Subjects: Financial institutions > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7684
• Institution: De La Salle University

Signs of financial distress are often reflected in a company's financial performance. In order to take preventive measures and avoid vulnerability to risks and losses, an effective method of determining financial condition should be used to detect these distresses. This research compared the performance of most commonly used predictive models, namely the Sloan accrual measure, Altman Z-model, Piotroski F-score, financial liquidity ratios and leverage ratios in Philippine publicly-listed firms from 2000-2014. The models were applied on a per-year basis and using three periods of simple moving average to present an alternative idea that financial distress can also be a dynamic process. Moreover, the research examined if there is a significant difference between using different periodic lengths of time by using paired t-test. The empirical results showed that the models that displayed most efficient performances in evaluating a firm's financial condition are the current ratios for the holdings, properties and services sectors and the Altman Z-score for the industrial and mining and oil sectors. Overall, the Revised Altman Z-score was the most efficient with 80% accuracy. The results, however, showed that it is vague to establish the order of significance of the models and ratios in indicating a company's financial condition because of their varying performances in each sector. In this study, results have shown that all the models and ratios except Piotroski F-score that applying simple moving average using any periodic length of time can provide more accurate results than computing the models and ratios included in the study on a per year basis. Given this, the empirical results of this study could be useful to investors and future researchers who are interested in finding the best predictors for failure through a firm's financial condition.