| dc.description.abstract | Many firms in developing and transitional economies are in financial distress situation, due to
low level of debt service coverage. The study of financial distress has become a significant
global issue after the global financial crisis of 2008. The soaring global financial crisis which has
resulted to increased cases of business failures resulting from the effect of bankruptcy as well as
insolvency. This study therefore was conducted with the objective of Altman’s failure prediction
model in predicting corporate financial distress in Uchumi Supermarkets in Kenya.
The study sourced data from secondary sources. The data was obtained from financial reports,
library, and organization’s records such as in-house magazines, journals, publications as well as
website and other resourceful information available at the Uchumi supermarket secretariat for 5
years from 2001 to 2006. The data extracted include ratios such as current assets and liabilities,
total assets, retained earnings, earnings before interest and taxes, book value of the equity and
sales. Data analysis involved preparation of the collected data, coding, editing and cleaning of
data in readiness for processing using SPSS and Microsoft office excel. In the analysis,
Multivariate Discriminant Analysis (MDA) statistical technique as used by Altman (2006) was
adopted. Altman (2006) is of the opinion that ratios measuring profitability, liquidity and
solvency are the most significant ratios.
The study has established that the Altman failure prediction model was appropriate to Uchumi
supermarket as it recorded declining Z-score values indicating the company experienced
financial distress and that is why the company was delisted from the NSE in 2006. In line with
these results, the study has recommended that; the policy makers of Uchumi supermarket should
continuously adopt the use of Altman failure prediction model in order to determine the growing
of the company and the state in which the company occurs as recommended by the Altman
model in which there are safe zone, grey zone and distress zone. This study highly recommends
to the potential investors in companies to use the Altman failure prediction model as an
assessment tool. The results could raise certain questions about the state of a company and could
ultimately result in an investor investing or purchasing a company that is profitable and wellmanaged
company since declining Z-score values depicts a failing company | en |
