Considering the utility of Altman's Z-score as a strategic assessment and performance management tool

Strategy and Leadership

Volumn 35, Issue 5, 2007, Pages 37-43

  Calandro Jr , Joseph ^a,b  

^a ACE American Insurance Company

^b UNIVERSITY OF CONNECTICUT   (United States)

Author keywords

Assessment; Change management; Corporate strategy; Performance management

Indexed keywords

EID: 34548655253     PISSN: 10878572     EISSN: None     Source Type: Journal    
DOI: 10.1108/10878570710819206     Document Type: Article

References (21)

1. The term "metrics war" is from: Randy Myers, "Metric wars - marketing battles erupt as Stern Stewart and rivals seek your hearts, minds, & dollars," CFO Magazine, October 1996.
2. Robert B. Carton and Charles W. Hofer, Measuring Organizational Performance - Metrics for Entrepreneurship and Strategic Management Research, Edward Elgar, Northampton, MA, 2006, p. 176.
3. 2), which was far higher than the study's other measures and is statistically significant (p-value less than 0.01) per Carton and Hofer (2006), cited above, p. 176.
4. In practical language, the change in Z-score provides substantial information about market-adjusted returns for firms similar to those included in the study. Note that those firms did not include financial services firms (Carton and Hofer, 2006, p. 135). For further specifics see Measuring Organizational Performance.
5. Edward I. Altman, "Financial ratios, discriminate analysis and the prediction of corporate bankruptcy," Journal of Finance, September 1968, pp. 589-609.
6. For information on distressed investing see "Investing in distress: The vultures take wing," The Economist, March 31, 2007, pp. 77-80.
7. For an enlightening, and highly entertaining, case study of a distressed investment see Dan Raviv, Comic Wars, Broadway Books, New York, NY, 2002, which describes the Marvel Comics distressed investment.
8. Robert S. Kaplan and David P. Norton, "The balanced scorecard," Harvard Business Review, January-February 1992, p. 76.
9. Ibid.
10. Carton and Hofer (2006), cited above, pp. 78-79 and 94.
11. This section is based on Edward I. Altman and James K. La Fleur, "Managing a return to financial health," Journal of Business Strategy, Summer 1981, pp. 31-38
12. and Michael Ball, "Z factor: Rescue by the numbers," Inc. Magazine, December 1980, pp. 45-48.
13. Altman and La Fleur (1981), cited above, p. 32.
14. 2), which was far lower than the variability explained by the change in Z-score. These results are not as statistically significant (p-value less than 0.10) as those described in note Carton and Hofer, cited above, (2006), p. 176.
15. Ball (1980), cited above, p. 46
16. Altman and La Fleur (1981), cited above, p. 36.
17. Ibid, pp. 34 and 36.
18. Data source: Altman and La Fleur (1981), p. 37; the growth calculation is mine.
19. Altman and La Fleur (1981), p. 37.
20. Carton and Hofer (2006), cited above, p. 127.
21. This quote reminds us of another recently published book that focuses on rate of change analysis, but at the macro level rather than micro level: Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycle (Boston, MA: HBS Press, 2005) by Joseph H. Ellis.