FİNANCİAL FAİLURE PREDİCTION WİTH ALTMAN Z-SCORE MODEL: AN APPLİCATİON ON ELECTRİCİTY GENERATİON COMPANİES TRADED ON THE STOCK EXCHANGE ISTANBUL

Abstract

The growth, development, survival and profit-making of companies depend on their ability to compete with other companies operating in the same sector. Firms have to use their resources effectively and efficiently to achieve this goal and are exposed to the risk of bankruptcy due to the waste of resources that are not used in accordance with the purpose. The primary and fundamental objective of financially stable and sustainable firms is to make profit and at the same time to maximise it.

Firms may be exposed to bankruptcy risks by weakening their financial performance over time due to various factors. Financial failure, financial distress or bankruptcy risk is the situation where the cash inflows of firms are insufficient to meet their current liabilities. Firms may face financial distress if the value of their assets exceeds their liabilities. In this case, firms need to resolve financial failure or financial distress, otherwise they are exposed to bankruptcy risk.

In this study, the financial risk status of the firms operating in the field of electricity generation and registered in Borsa Istanbul, whose shares are offered to the public, is estimated. In the study, 5-year financial data of the firms between 2018-2022 were taken. The ratios required for the prediction of the financial failures of the firms were calculated and the Altman Z-score method was used to predict whether the firms are exposed to bankruptcy risk.

At the end of the study, when the firms operating in the field of electricity generation in Borsa Istanbul and subject to the examination are analysed, it is seen that the firms generally have financial difficulties, have difficulties in paying their debts and face bankruptcy risk and are located in the red area, which is an indicator of bankruptcy risk. According to the Altman Z-score method used in the evaluation of financial risks, it is observed that electricity generation firms generally have difficulties in paying their debts and face bankruptcy risk. According to the results obtained, it is seen that İpek Enerji is the only company in the green and safe zone among electricity generation companies that does not experience financial difficulties and does not carry the risk of bankruptcy between 2019 and 2022.

Keywords: Financial Distress, Risk of Bankruptcy, Altman Z-Score Model

JEL Code: G10, M40, M41