Testing Financial Distress of Manufacturing Firms in Tanzania: An Application of Altman Z-Score Model.

Abstract

There are several indicators of poor financial performance and one of them is financial distress. If financial distress is not predicted on time and quick measures been taken then bankruptcy is likely to occur. The costs associated with bankruptcy are enormous and normally tend to affect all stakeholders of the firm. The study applies Multi Discriminant Analysis (MDA) which involves consolidation of effects from all ratios which are measuring the key aspects of financial health. Keeping the above view in mind, the model has been employed to test the financial distress of six (6) manufacturing firms listed in Dar es Salaam Stock Exchange (DSE) in Tanzania from 2010 -2014. The study was based on the published secondary data extracted from annual financial report. Findings revealed that five firms were experiencing financial healthy (average Z-score above 2.99) while the remaining two manifested financial distress (average Z-score is less than 1.88) over the study period. Further findings shows that, management needs special attention on those variables which are very sensitive with regards to financial health of the firms under discussion.