Green University of Bangladesh (GUB)

AssignmentOn

Strategic Management Accounting – (ACC – 408)

Topic: Chapter – 14 : Predicting and Preventing Corporate Failure.

Semester: Spring – 2014 (1401)

Prepared for:

Md. Kamruzzaman

Lecturer, Strategic Management Accounting

Department of Business Administration (DBA)

Green University of Bangladesh (GUB)

Dhaka, Bangladesh.

Prepared by:

Md. Moazzem Hossain

ID. 110106034

Date: 23rd April 2014 Signature

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Letter of Transmittal

April 23, 2014

Md. Kamruzzaman

Lecturer, Strategic Management Accounting

Department of Business Administration (DBA)

Green University of Bangladesh (GUB)

Subject: Submission of an assignment.

Dear Sir

I gladly present to you our assignment titled “Chapter – 14 : Predicting and Preventing Corporate Failure”. I have made the assignment as you give me to do by help of your article, lecture sheet and internet.

I believe the knowledge and experience I gathered during the assignment will be extremely helpful in my future academic life and professional life. I will be grateful to you if you accept the assignment.

Your support in this regard will be highly appreciated.Thanking you.

___________________Md. Moazzem HossainID. 110106034

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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.

Corporate Failure Models

There are two (02) types of corporate failure model –

I. Quantitative Model.

II. 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.

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

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

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Avoiding Failure: Ross and Kami listed “Ten Commandments” that should be

followed by a company to avoid 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.

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.

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