Though developed in 1968 using a small sample of firms from the 1950s and 1960s,
Altman’s Z-Score model remains a commonly used tool for evaluating the financial health of companies. Because of the age of the model and other attributes, such as its small sample of manufacturing firms and the use of equal group sizes bankrupt and non-bankrupt firms, it is likely that model is not as effective in classifying firms in more recent studies as it was developed by Altman. This study examines three research questions using recent sample data: (1) Is Altman’s original model as useful for predicating bankruptcy in recent periods as it was for the periods in which it was developed and tested by Altman? (2) Is the model as useful for predicating financial stress conditions other than bankruptcy as it is for predicting bankruptcy? (3) Is it true that as the time passes, the ability of the model to predict decreases?
Our results are consistent with positive answers to questions one and two and a negative answer to question three.