Predicting Financial Health Using the Altman Z-Score: A Case Study of Sri Lanka Telecom PLC

Abstract

The telecom industry is a vital sector that significantly contributes to economic growth by facilitating communication, connectivity, and technological development. Early prediction of bankruptcy provides stakeholders with warning signals and enables the implementation of corrective strategies before financial failure becomes irreversible. As the telecom industry is classified under the service sector, the modified Altman Z-Score model for service or non-manufacturing firms was applied to assess the financial health of Sri Lanka Telecom PLC. The modified Altman Z-Score was calculated using four key financial ratios: Working Capital to Total Assets, Retained Earnings to Total Assets, Earnings before Interest and Taxes to Total Assets, and Book Value of Equity to Total Liabilities. Secondary data were collected from the company’s annual reports covering the period 2019–2024. The Altman Z-Score analysis of Sri Lanka Telecom PLC from 2019 to 2024 reveals a concerning financial trajectory. The company predominantly remained in the Grey Zone, briefly reached the Safe Zone in 2020, and alarmingly fell into the Distress Zone in 2023. This downward trend indicates heightened financial risk and underscores the need for urgent, sustained measures to ensure long-term solvency. To mitigate these challenges, Sri Lanka Telecom PLC should focus on enhancing operational efficiency, strengthening liquidity, restructuring short-term debt, and optimizing its capital structure. Furthermore, management must implement rigorous cost-control measures and actively pursue revenue diversification to safeguard against future financial shocks and restore investor confidence.