Evaluate the extend to which Altman's Z Score and Argenti's A Score Essay

Evaluate the extend to which Altman's Z Score and Argenti's A Score become useful to different groups in the society and also comment on the extend to which the - Essay Example Ratio between 1.8 and 3.0 are considered in the gray area of the scale, the closer it gets to the 1.8 barrier the greater the risk of the company going bankrupt. The Z Score model which was created by Edward Altman in the 1960s is pretty accurate in real world application the model was able to successfully predict 72% of corporate bankruptcies two years prior to the companies filing for chapter 7 (Investopedia, 2008). The Altman Z Score tool integrates know financial ratios into the equation whose utilization in the equation give the predictor credibility among the financial industry users. Professor Altman used the Z-score tool he created to develop a model differentiating companies with high probabilities of bankruptcy from companies that are not prone to this type of hazard. Altman’s Z Score determines the likelihood of bankruptcy by utilizing five metrics commonly used by financial analyst to determine five particular financial ratios. The data to the financial ratios is directly extracted from the financial statements of a company. The five variables composed of financial ratios that make up the formula are illustrated below: The metrics involved in the formula are derived from the Income Statement and Balance Sheet financial statements of a company. The tool is both applicable to financial statements of manufacturing and non-manufacturing corporations. The Z-score model substitutes the book value of equity (owner equity) for market value in X and thus it can be used to evaluate privately and publicly held firms on an equal basis (EPA, 2000) The Altman’s Z score is a useful tool for the banking industry. Banks have to make decision on the credit worthiness of corporation in order to determine if a company is eligible for bank loans, credit lines or vehicle financing among others. By utilizing the Z Score tool the bank would know that if a company scores in the low 2 the enterprise is high risk type endeavor.

3.Using an extended example critically discuss the view that a sector Essay - 2

3.Using an extended example critically discuss the view that a sector matrix gives a better strategic understanding of product markets than the concepts of product or commodity chains - Essay Example the incorporation of both value chain analysis and commodity chain analysis, sector matrix analysis stands out as the most effective tool for businesses to generate better strategic understanding of product markets (Froud, Johal, Leaver and Williams, 2006). The sector matrix offer information about complex product markets unlike commodity chain analysis that is based on a linear analysis. This study will first expose the inherent weaknesses in the commodity chain analysis that makes the model ineffective in the modern product markets before embarking on suitability of sector matrix as the preferred tool that should be used to determine business policies. A commodity chain for any given product covers the necessary processes that take place to ensure at the end of the undertaken activities is a finished product. Since the development of commodity chain analysis, researchers have identified number of issues that limits the ability of the concept to provide an up to date analysis of product market situations (Kutting, 2004). This criticism has not only been from scholars outside the commodity chain perspective, but also from within. For instance, the different perspectives by scholars who use the commodity chains concept has resulted in the presence of two schools of thought where there are those in favour of the traditional world systems approach who are attributed with the introduction of commodity chain concept. The other school of thought that includes scholars such as Gary Gereffi and colleagues are in favour of a more encompassing tool for analysis and are therefore credited with the introduction of the global commodity chain (Ba ir, 2005). For instance, the transformation brought by globalization can be experienced when in the clothing industry the raw material is harvested in India but manufactured into yarn in Portugal. The yarn is then transported to Taiwan for colouring then to Poland where it is weaved. The other parts like buttons and rivets are