Accounting and Financial Management

This document discusses the concepts of accounting and financial management, including financial performance, financial statement analysis, financial distress, and bankruptcy. It explores the use of Altman Z Score and Ohlson's O-Score for predicting bankruptcy in companies. The research aims to evaluate the impact of these models on the financial position of companies and identify factors affecting their operational and financial performance. The document also provides a proposed research methodology and expected results.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and Financial Management
Name of the Student:
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1ACCOUNTING AND FINANCIAL MANAGEMENT
Table of Contents
Introduction................................................................................................................................2
Literature Review.......................................................................................................................2
Financial Performance...........................................................................................................2
Financial Statement Analysis.................................................................................................3
Financial Distress...................................................................................................................3
Bankruptcy.............................................................................................................................4
Research Questions....................................................................................................................4
Proposed Research Methods......................................................................................................5
Expected Results........................................................................................................................7
Conclusion..................................................................................................................................7
Timetable....................................................................................................................................8
Reference....................................................................................................................................9

2ACCOUNTING AND FINANCIAL MANAGEMENT
Introduction
Existence of the industry is influenced by various macro-economic and business
factors under which the operations of the company is based. Failure of business affects the
various parties involved which can cost the company and create substantial loss for the
companies. Financial analysis of the companies can be well evaluated with the help of the
valuations of the operational and financial performance of the company so that the prediction
of bankruptcy an uncertain events can be well assessed for minimizing the loss of the
company. Application of various assessment of the company in terms of uncertain events like
bankruptcy can well be predicted with the help of the Altman Z Score and Ohlson’s O-Score
Model (Econ.tohoku.ac.jp. 2019). The primary reason and the benefit for predicting the
uncertain events is to minimize the loss arising from such events and possibly to reduce the
impact of such events on the financial performance and financial position of the company in
the long-term. The research question will be focusing on the use and application of Altman Z
Score and Ohlson’s O-Score for the purpose of predicting bankruptcy in the companies
(Essay.utwente.nl. 2019). The organizations need to be aware of the future financial distress
so that such scenarios do not lead to a decline in the performance of the companies. The
research question aims at application of the better model which can be applied for better
prediction of bankruptcy in companies. Inclusion of various facts and theories in regard to the
research conducted on the application of the models was analysed
(Indianresearchjournals.com 2019).
Literature Review
Financial Performance
The assessment of the financial performance of a company is one of the various tools
which is used in order to ascertain the quality of the organization. The evaluation of the

3ACCOUNTING AND FINANCIAL MANAGEMENT
financial performance of an organization ascertains the deficits so that they can be resolved as
fast as possible.
Financial performance even has a close association with financial management as it is
known to be one of the financial management activities. Arc.hhs.se (2019) explains financial
management to be associated with the establishment and maintenance of the economic wealth
and value. In this manner, financial management even concentrates in the decision making
process by keeping an eye on developing wealth.
One of the key sources of understanding the financial performance has to assess and
observe the financial statements. People.stern.nyu.edu. (2019) cited that by assessing the
financial statements the financial performance of any organization can be understood.
Financial Statement Analysis
According to Altman et al. (2019), the analysis of the financial statement is the
incorporation of the analytical tool and techniques for the generic purposes of the financial
statements and the associated information with the help of which effective projections and
conclusions of the business assessments can be understood.
Altman et al. (2019) addressed that the evaluation of the financial statements are the
integral section of an extensive business analysis. Business analysis is even known to be the
method of assessing the economic outlook and the risks related to the organization. It is
inclusive of the evaluation of the business environment of an organization along with the
financial performance and position of the organization.
Financial Distress
Financial distress is known to be the scenario of an organization, which can be
detected with the help of the assessment of the financial reports. The condition of an
organization can be the symbol of caution of a worse scenario, which is even known as

4ACCOUNTING AND FINANCIAL MANAGEMENT
bankruptcy. The organizations need to be aware of the future financial distress so that such
scenarios do not lead to a decline in the performance of the companies.
Taoushianis, Charalambous and Martzoukos (2016) explained that there are several
stages of financial distress and financial distress can be explained as insolvency and the
position of the assets and the liability of an individual who is unable to pay their debts back.
Ghosh (2017) cited that financial distress of an organization which stops their
operational activities by the power of the government and the organizations are asked to
incorporate the reframing plans.
Bankruptcy
Bankruptcy is one of the several factors that any organization tries to avoid. One of
the key objectives of any organization has been to understand the probability of bankruptcy at
the time of evaluating the financial statements.
Generally bankruptcy can take place when the organizations are unable pay off their
debts. As cited by Ijsr.net. (2019), bankruptcy has been known to be the official status that is
applicable to the bankruptcies as the entities are unable to pay the debts to the creditors. The
extent of bankruptcy is taken into consideration by the debtors and bankruptcy is understood
when the extent of debt of an organization is more than the total assets. There are certain
factors that may lead to bankruptcy and they are known to be economic events, decisions of
the government, mismanagement and the certain unprecedented and natural events.
Research Questions
The aim of the research will be focusing in the various impact on the financial
position of the company and the various factors which would be affecting the operational and
financial performance of the company. Financial risk and business risk are the two common

5ACCOUNTING AND FINANCIAL MANAGEMENT
problems associated with the companies which should be taken care for the long term
sustainability of the performance of the company (Breaking Down Finance. 2019).
Hypothesis 1: Altman-Z score is more accurate than Ohlson’s o-score.
Hypothesis 2: Ohlson’s o-score is more accurate than the Altman-z Score.
Both the above tools that are analyzed takes various factors and approaches into
consideration for the purpose of the analysis of the uncertain movement in the financial
position of the company. Both the above tools can be applied but the same differs in terms of
the availability and consistency of the financial data presented by the company and the
logical and economical support given by the respective model. The Ohlson’s O-Score model
has around 9 financial ratio which are taken into consideration for the purpose of the analysis
of the company while the Altman Z-Score considers around 5 key financial and operational
ratio for the evaluation of the financial condition of the company.
Proposed Research Methods
For the evaluation of the particular research by the author the selection of various
theories and facts would be taken into consideration for the purpose of the analysis of the
company. The existing theories and models will be based on various factors like evaluation of
the bankruptcy using and applying the Altman Z-Score and Ohlson’s Score
(Pdfs.semanticscholar.org. 2019). The common formulas and evaluation of both the model
are as follows:

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Where;
TA = total assets
GNP = Gross National Product price index level
TL = total liabilities
WC = working capital
CL = current liabilities
CA = current assets
X = 1 if TL > TA, 0 otherwise
NI = net income
FFO = funds from operations
Y = 1 if a net loss for the last two years, 0 otherwise
Altman Z-Score
Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where:
A = working capital / total assets
B = retained earnings / total assets
C = earnings before interest and tax / total assets
D = market value of equity / total liabilities
E = sales / total assets

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Expected Results
The analysis and the factors included in the Ohlson’s O-Score Model is comparatively
more broad based than the Altman Z-Score. Application of Ohlson’s O-Score Model includes
application of financial factors of the company as well as the macro-economic factors like the
level of inflation under which the operations of the company is based. The probability
function given by the model gives a more classified and detailed results about the company.
Thus, Hypothesis 2 can be considered as a relevant analysis and evaluation tools for the
assessment of company’s financial position and predicting the uncertain events like
bankruptcy.
Conclusion
The evaluation of the financial performance of an organization ascertains the deficits
so that they can be resolved as fast as possible. Application of various assessment of the
company in terms of uncertain events like bankruptcy can well be predicted with the help of
the Altman Z Score and Ohlson’s O-Score Model was the key assessment done. Application
of Ohlson’s O-Score was considered to be more broad based than Altman Z-Score which
includes various macro-economic and financial factors for the purpose of analysis and
evaluation of the financial data of companies. Hypothesis 2 was considered as a relevant
analysis and evaluation tools for the assessment of company’s financial position and
predicting the uncertain events like bankruptcy.

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Timetable
Activity Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Topic selection and
justification
Literature development
Selection of relevant
methods
Data collection
Data analysis and
interpretation
Discussion of
outcomes
Conclusion and
recommendations
Submission of final
draft
Printing and final
submission

9ACCOUNTING AND FINANCIAL MANAGEMENT
Reference
Altman, E., Iwanicz-Drozdowska, M., Laitinen, E. and Suvas, A. (2014). Distressed Firm and
Bankruptcy Prediction in an International Context: A Review and Empirical Analysis of
Altman's Z-Score Model. SSRN Electronic Journal.
Arc.hhs.se. (2019). [online] Available at: http://arc.hhs.se/download.aspx?MediumId=1488
Breaking Down Finance. (2019). Ohlson's O-Score - Breaking Down Finance. [online]
Available at: https://breakingdownfinance.com/finance-topics/risk-management/ohlsons-o-
score/
Econ.tohoku.ac.jp. (2019). [online] Available at:
http://www.econ.tohoku.ac.jp/econ/datascience/DDSR-DP/no62.pdf [Accessed 17 Feb.
2019].
Essay.utwente.nl. (2019). [online] Available at: https://essay.utwente.nl/68211/1/Gerritsen
%20P.L._MA%20BA_Behavioural%2C%20Management%20and%20Social%20sciences
%20%28BMS%29.pdf
Ghosh, B., 2017. Bankruptcy Modelling of Indian Public Sector Banks: Evidence from
Neural Trace. International Journal of Applied Behavioral Economics (IJABE), 6(2), pp.52-
65.
Ijsr.net. (2019). [online] Available at: https://www.ijsr.net/archive/v4i12/NOV152403.pdf
Indianresearchjournals.com. (2019). [online] Available at:
http://indianresearchjournals.com/pdf/IJMFSMR/2012/April/10.pdf
Pdfs.semanticscholar.org. (2019). [online] Available at:
https://pdfs.semanticscholar.org/4d0a/2fc7d807f4a65a874effe09123898ea3e022.pdf

10ACCOUNTING AND FINANCIAL MANAGEMENT
People.stern.nyu.edu. (2019). [online] Available at:
http://people.stern.nyu.edu/ealtman/Financial%20distress%20prediction%20in%20an
%20international%20context.pdf
Taoushianis, Z., Charalambous, C. and Martzoukos, S.H., 2016. Assessing Bankruptcy
Probability with Alternative Structural Models and an Enhanced Empirical Model.