Assessing Corporate Financial Distress in Automobile Industry of India: An Application of Altman's Model

Abstract

This paper attempts to investigate the financial health of automobile industry in India and test whether Altman's Z score model can foresee correctly the corporate financial distress of the automobile industry in Indian context for the study period, 2003-04 to 2009-10. Present analysis reveals that automobile industry under our study was just on the range of intermediate zone. In our study, Z values for all the seven years were more than 1.81 but less than 3(Z score= In between 1.81 and 3.0= Indeterminate). It is an alarming matter that Z score value is gradually declining since 2007-08 after global recession hits Indian economy in general and automobile industry in particular. This indicates that overall financial performance of automobile sector in India is at present viable as Z score indicates but may lead to corporate bankruptcy in near future unless regulatory measures are undertaken immediately.