Applicability of Bankruptcy Prediction Models for Companies of Different Portability of various sectors


Applicability of Bankruptcy Prediction Models for Companies of Different Portability of various sectors.


K1=EBT/Current liabilitiesK2=Current assets/LiabilitiesK3=Current liabilities/propertyK4=(Quick realized assets - current liabilities)/Operating costs

For the following task I have chosen to analyze two American companies that both are in the same sector which is electronic retail. The companies are Circuit City and Best Buy. The first company I have chosen Circuit city because it is one of the bigger companies that have gone bankrupt in the time of economic crysis of 2008 and the second one is Best Buy since this company have been working in the depression and still is working now.Circuit city

II. Calculation of relevant financial indicators that are required by Bankruptcy Prediction Models (2008)

While modules showed results of the companies that kind of showed their actual look in the real life, one model "Chesser" was showing strange results. I have calculated a few times and checked if all the data that i have taken is correct, but the results still were bad. Therefore i did not include Chesser model results in the comparison table.

III. Calculation of bankruptcy models for the company that did not go bankrupt

We are calculating now from the Best Buy 2012 Financial report.AltmanT1 = (Current Assets − Current Liabilities) / Total Assets

The companies score is in the grey zone:1.1 < Z < 2.6 Grey Zone

A strong possibility to bankruptThe results of the 2012 Best buy and the 2008 Best buy comparison

As we can see the scores got lower in 2012, but all in all Best Buy still going quite steady.

The Circuit City company has gone bankrupt in 2009, while Best Buy still is active at the present moment. The results from the modules show that Best Buy has a lower probability of going bankrupt, yet Circuit City doesn't show any signs of a inevitable end of their activities. However while looking at financial statements the Circuit City balance sheet was indicating that something is actually wrong with the company.What actually was going in the company is that while Best Buy was actively innovating their stores, put more pressure on sales department, found out what the buying trends are, Circuit city was going in the other direction. They have fired 3400 of their experienced sales personnel, were not putting any efforts towards innovations, did not keep with the trends and did ignore the trends of customer demand products. At that time their managers and other higher ups saw a fail instead of opportunity and just left the company without any fight to save the company. While still not near the economic crisis City Circuit sales were even lower than during the crisis, gross profit is almost the same in every year (2004-2008).

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  • Applicability of Bankruptcy Prediction Models for Companies of Different Portability of various sectors
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Applicability of Bankruptcy Prediction Models for Companies of Different Portability of various sectors. (November 6, 2016). https://documents.exchange/applicability-of-bankruptcy-prediction-models-for-companies-of-different-portability-of-various-sectors/ Reviewed on 23:58, December 5 2020
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