Possibilities of the Altman Zeta Model Application to Czech Firms

Many economists and analysts from all over the world have been trying to find a method to assess company health and predict its eventual financial distress for many years. No economy is a small isolated island and the bankruptcy of a company can also influence a situation on the other side of the world. But companies are very complicated organisms and that is why it is not a simple task to estimate company future development. The best-known model of prediction called Z-Score was introduced by E.I. Altman in the USA more than forty years ago, in 1968. This model was modified several times. The best-known modification is the ZETA model which is applicable to unlisted companies and was established by Altman in 1977. The Z-Score model was verified not only by the author but also by other analysts many times. Some analysts criticize that the model doesn't give correct results. Above all, it is not able to detect the coming crisis within a sufficient time period. The aim of this paper is to introduce the ZETA model to readers and try to show the application possibilities of this model to companies in the Czech Republic. The model is described in the first chapter. The next chapter focuses on the ZETA index value calculation for Czech companies. Variables of the model are tested in others chapters. i also try to set correlation coefficient for each pair of the variables. In my analysis i worked with accounting data of thirty-seven going companies and thirteen firms which went bankrupt.