PREDICTING BANKRUPTCY OF COMPANIES: EVIDENCE FROM GHANAIAN LISTED BANKS

Abstract

Purpose: The study assessed the performances of Ghanaian banks in terms of their liquidity, solvency and profitability by applying financial ratios on the published audited financial statements and further predicted the bankruptcy of the selected banks with the application of Altman Z-model for selected banks in Ghana Stock Exchange. Methodology: Data gathered was analyzed using liquidity, leverage and profitability ratios as well as Altman Z-score. Current ratio and quick ratio were used to assess the liquidity of the banks. Additionally, debt to asset ratio and debt to equity ratio were utilized to find out the solvency of the banks. Whereas, return on assets and return on equity were employed to examine the profitability of the banks. Finally, working capital to assets, retained earnings to assets, earnings before tax to assets and market value of equity to liabilities were the ratios employed to determine the Z-scores. Results: Findings revealed that the liquid positions of the banks were below expectations. As far as the solvency positions of the banks were concerned, findings revealed the sector is highly leveraged. Analysis of the profitability position showed that the banks are fairly profitable as their profit averages were above that of the industry. Again, the Altman Z-score model revealed that all the selected banks except one were in corporate distress and far below the standard ratio to be in safe zone and thus, were likely to declare bankrupt.