A Study on Prediction of Default Probability of Automobile Dealership Companies using Altman Z Score Model

Abstract

Over the past few years, the auto dealership company’s profitability is eroded due to increasing operating cost and financial expenses. This decline in profitability is due to a higher level of stocking and working capital requirements. On account of above factors, the companies facing severe liquidity problems and leads to bankruptcy. Predicting bankruptcy is important for investor and other stakeholders to take appropriate decision on making investments.  Identification of probability of default may avoid various problems shortly & may shelter the company from Bankruptcy situation. If the financial distress was predicted ahead of time, stakeholders of the companies can secure their company and could take necessary action to mitigate the risk and perhaps avoid bankruptcy itself. The financial health of the firm shall be established with detailed ratios analysis and using other Financial analytical tool. The analysis establishes the financial performance of a firm by evaluating its operational and financial status. For this specific study, we are trying to analyze the probability of bankruptcy of automobile dealer companies using Altman’s Z-Score Model and their score. This study aims to evaluate the financial distress of the automobile dealership companies in India.