Predicting Financial Distress and Evaluating Long-Term Solvency: An Empirical Study

This empirical study on two leading steel manufacturing companies of India, Steel Authority of India Limited (SAIL), a public sector undertaking, and Tata Steel Limited, the largest private sector company, aims at predicting bankruptcy or financial distress, using Altman’s Z-Score model which is based on several financial ratios. This research paper also investigates the long-term solvency position of the sample companies, by the use of a common technique of common-size analysis along with six solvency ratios in conjunction with the statistical technique of hypothesis testing. The Student’s t-test is carried out to examine the significance of difference in the various mean solvency ratios of SAIL and Tata Steel. The paper finally offers some relevant suggestions for improving the solvency position of the selected companies and also to be stay away from bankruptcy or financial distress.