The authors explore the question of bankruptcy in public companies

The authors seek the question of bankruptcy in public companies, trying to come up with ways of predicting the looming bankruptcy. Pointing to the growing scale of this harmful phenomenon with a greater bod of larger companies going bankrupt, Chuvakhin & Gertmenian argon trying to present businessmen with a framework for analysing the performance of business companies so as to receive trace of their problems before they are forced into bankruptcy.To arrive at this understanding, they utilise Z-score amazeinging constructed by Edward Altman in 1968.The attempts to arrive at a ratio that could exercise as a bona fide predictor of the upcoming bankruptcies have been undertaken for years, including a news report by William Beaver. The critical breakthrough came when Edward Altman built a comprehensive, statistical model using a technique called multiple discriminant analysis (MDA) (Chuvakhin & Gertmenian, n.d.). The model relies on the combination of five different ratios that fi re later be summarised into a so-called Z-score.Altman indicated that a company with a Z-score above 2.675 could be considered solvent, that with a score under 1.81 was liable to go bankrupt, and companies with Z-scores in the range of 1.81-2.675 cast off into gray area or ignorance zone, which meant that they could escape bankruptcy, but with difficulty.The judicial issue explored in the articles refers to companies that forge numbers in their books, deceiving investors, as in the case of Enron and WorldCom. The authors ask Is it possible to predict bankruptcy if the companys management is cooking the books?Their answer is yes since the Z-score model would avoid these accounting irregularities. For example, in the case of WorldCom that overstated both assets and earnings, the combination of ratios used by the model would overlook it, since a rise in earning would increase the first leash ratios, but a rise in assets would decrease the last two, with the jar offsetting each othe r.The model outlined in the article is of great mensurate to managers of different companies. From the managerial perspective, it is extremely important which of the firms customers are likely to go bankrupt. If the bankruptcy of a large client comes a like a bolt of liberalning, totally sudden and unanticipated, the firm can end with a large amount of bad debt in its accounts receivable account.In 2001 alone, bankruptcy affected 257 public companies with combined assets of $256 billion (Chuvakhin & Gertmenian, n.d.). In the light of this fact, effective methods for bankruptcy prediction become a serious contact for managers.