Strategic management accounting (Predicting and Preventing Corporate Failure)

Welcome

Course Instructor

Md. Kamruzzaman

Lecturer, Strategic Management Accounting

Green University of Bangladesh (GUB)

Department of Business Administration (DBA)

Md. Moazzem Hossain

ID. 110106034

Presentationon

Chapter – 14 : Predicting and Preventing Corporate Failure.

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?

Corporate Failure Model

There are two (2) types of corporate failure model –

1) Quantitative Model.

2)Qualitative Model.

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.

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

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

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 -

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.

Any Question???

Thank You…