Bankruptcy prediction for steel industry in India using Altman Z score model

The stakeholders of the company especially the shareholders and creditors often want to know financial soundness of the company in short and long term and to take the necessary steps at present accordingly so as to maintain an ideal situation. To support the same, a business organisation should have certain analytical models and using it for predicting unwanted financial and business risks or bankruptcy. In this back ground the Researchers have made an attempt to predict the bankruptcy for the Indian Steel Industry by considering two objectives. They are to identify the company’s degree of closeness to bankruptcy and to deduce the various parameters involved in influencing the inferred values to a large extent. This study has been undertaken for ten sample companies form Indian steel industry by applying Altman Z score model which consists of working capital / total assets ratio, retained earnings/ total assets ratio, profit before interest and tax / total assets ratio, market value of equity / debt book value ratio and sales / total assets ratio. It was found that only two of ten companies were in the safe zone that too they just entered the safe zone during the FY 2017-18. The two large scale companies which are the oldest in the industry are also in distress zone but one can see the rise of JSW steel which will soon overtake the two big giants. S.A.L Steel and Hisar Metal Industries are the two safe companies, though they don’t work at a scale as large as other but still it is able to look after its liquidity and profitability which drives the company towards growth.