Bankruptcy Prediction

Bankruptcy prediction refers to the process of assessing the likelihood that a company or individual will become bankrupt. This is typically done using financial models and indicators, such as the Altman Z-score, which analyzes factors like profitability, leverage, liquidity, and solvency to estimate the probability of bankruptcy. Predicting bankruptcy is crucial for investors, lenders, and creditors, as it helps them make informed decisions about extending credit or investing in a company.

Example

An investor might use the Altman Z-score to assess whether a company they are considering investing in is at high risk of bankruptcy, based on its financial ratios.