COMPARISON OF ALTMAN'S Z - SCORE MODEL AND ALTMAN'S Z''- SCORE MODEL ON THE SAMPLE OF COMPANIES WHOSE SHARES ARE INCLUDED IN THE REPUBLIC OF SRPSKA STOCK EXCHANGE INDEX

Abstract

In this paper, we analysed companies whose
shares are included in the Republic of Srpska Stock
Exchange Index (BIRS), using Altman's Z-Score model and
Altman's Z"-Score model, in order to determine their
insolvency risk. Altman's Z-Score is a combination of five
weighted financial ratios used to estimate the likelihood of
financial distress, and possible bankruptcy of the observed
companies. It is used widely by auditors, accountants,
commercial banks, and other organizations to assess the
financial health of their clients. Altman also developed
revised versions of the model to assess the financial health
of privately-held firms and non-manufacturing companies,
as well as companies in emerging markets - Altman's Z'-
Score model and Altman's Z" - Score model. The results of
our research on a sample of 14 companies whose shares are
included in BIRS show that, although it is an emerging
market, Altman's Z-Score model gives better results that
indicate much-needed caution when drawing conclusions
about the observed companies.