Abstract:
Recent failures of large corporations at the international level and instability of
securities in Sri Lanka have emphasized the importance of evaluating the companies'
financial distress. One of the methods of evaluating financial distress is bankruptcy
prediction models. They are the tools for measuring the financial healthiness of
companies in the future. This research aims to bring out the theoretical foundations
and make a deep study about the results of Altman’s model (1968) in the Colombo
Stock Exchange through statistical techniques of Multiple Discriminant Analysis and
Logistic Regression Model. The data was gathered from 2013 to 2018. The results
obtained from the Multiple Discriminant Analysis identified that Altman’s model
could predict bankruptcy within one year before with an accuracy rate of 72.10%.
According to the logistic regression analysis, Altman’s model has a higher
predictability power. This research's findings can be applied by potential investors
when designing their investment strategies in healthy financial companies.
