Using the Altman Z-Score Model to Identify Bankruptcy Risk Prior to Insolvency Proceedings

This paper examines the use of the Altman Z-score model in identifying bankruptcy risk prior to the initiation of insolvency proceedings. The study adopts an empirical research design and applies the model to a sample of five economic entities operating in the same sector over the period 2021-2023. The analysis included four SMEs involved in bankruptcy proceedings, along with one financially stable company for comparison. Our analysis is based on information extracted from their annual financial statements, namely balance sheet and income statement data, to assess liquidity, solvency, and operational performance. The comparison between the companies analyzed points to a visible separation between firms in financial difficulty and the company used as a benchmark. For the distressed firms, the Altman Z-score was generally placed below the critical level, which suggests that the deterioration of their financial position could be observed before the formal opening of insolvency or bankruptcy proceedings. The stable company showed a different trend, with values remaining within the safe zone throughout the period examined. This suggests that accounting data, analyzed through financial ratios and bankruptcy-risk models, can help show when financial decline begins and how it progresses. In this sense, the Altman Z-score should be viewed not as a stand-alone proof of insolvency but as a supporting tool for forensic accounting reports in judicial cases.