Zeta Model

Zeta Model

A model used to predict the likelihood that a publicly-traded company will file bankruptcy in the coming two years. The zeta model derives a company's z-score, in which a high z-score indicates low likelihood of bankruptcy. The z-score is calculated as follows:

Z-Score = 1.2a + 1.4b + 3.3c + 0.6d + e

The variables are as follows:

a: the ratio of working capital to total assets;

b: the ratio of retained earnings to total assets;

c: the ratio of EBIT to total assets;

d: the ratio of the market value of the equity to total liabilities; and

e: the ratio of sales to total assets.
References in periodicals archive ?
In view of the fact that majority of Czech companies are not publicly traded on the Stock Exchange, the Z-Score model applicable to nonlisted companies on the Stock Exchange, specifically the ZETA Model, (2) was chosen for the research.
The aim of this research is to evaluate whether the ZETA Model provides correct results; that is whether it predicted bankruptcy of the bankrupt companies, conversely, whether it ranked the successful companies among the group of healthy companies.
Altman ZETA Model Values of Selected Czech Companies
If we examine results of the ZETA model of the successful companies (see Table 4), it is obvious that the Altman's model assessed 31 companies as financially healthy.
Table 6 shows the ZETA model results of the bankrupt companies in individual years prior to bankruptcy.
The survey showed that the Altman ZETA model did not give us conclusive results regarding the bankrupt companies.
Therefore, this chapter aims to check whether there are statistically significant differences in mean values of the ratios, which are included in the Altman ZETA Model, for the prosperous companies in comparison with those that went bankrupt.
The testing has implied that all ratio indicators comprised in the ZETA model have statistically higher values with prosperous companies than with bankrupt ones.
The ZETA Model ranked the prosperous companies correctly in the group of healthy companies.
The ZETA Model has detected the financial difficulties of the analysed companies one year, in some cases two years prior to the very bankruptcy of the companies.
4: ZETA Model Values of Successful Companies 2006 2005 2004 2003 1 4.