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" APPLICATIONS OF Z -SCORE MODEL TO PREDICT FINANCIAL HEALTH IN

SELECTED REAL ESTATE COMPANIES LISTED IN NSE (FOR THE PERIOD 2007-
2012) "

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 “APPLICATIONS OF Z - SCORE MODEL TO PREDICT FINANCIAL
HEALTH IN SELECTED REAL ESTATE COMPANIES LISTED IN
NSE
(FOR THE PERIOD 2007-2012)”

DR. SATISH KUMAR1

Mr. ANIRUDDHA GHOSH2

ABSTRACT

Real estate is a very high risk prone sector. Companies operating into this sector are always
under threat from different corners such as change in Land Acquisition policy, change in
Land procurement policy, Increase in home loan interest rate, pressure, increase in the
prices of steel & cement factors bring uncertainty in terms of returns of these sector. In the
present paper, an effort is made to check the financial health of the selected major corporate
with the help of Z score model for the period of 2007-2012. The finding on the basis of Z
score indicates that the corporate houses selected under the period of the study are falling in
danger or bankruptcy zone or in the stable zone.

JEL classification: GO1, G 18, G33

Key Words: Z score, Real estate, Bankruptcy, Financial health.

1.1. INTRODUCTION

1.1.1. Real estate:

Real Estate is "Property consisting of land and the buildings on it, along with its natural
resources such as crops, minerals, or water; immovable property of this nature; an interest
vested in this; (also) an item of real property; (more generally) buildings or housing in
general. Also: the business of real estate; the profession of buying, selling, or renting land,
buildings or housing.

1.1.2. Real Estate - Introduction To Real Estate

1
Director, Vidya School of Business, Meerut. Mobile No:+91-9997969393 E-mail: skpsatish@gmail.com
2
Asst. Professor, Vidya College of Engineering, MBA Deptt. Mobile No:+91-7895567917 Email:
prof.aniruddhaghosh@gmail.com
Real estate is a business, not a profession. Real estate is sometimes inaccurately spoken of as
a profession, but it is essentially a business. A profession applies science, art or learning to
the use of others, the profit to the professor or person applying it being incidental; whereas a
business is engaged in primarily for profit, and the profit is to the one engaging in the
business.

A profession implies professed attainment in special knowledge. A person may engage in

business with or without special knowledge and no one else is concerned with the question
whether he has any knowledge of the business, because no one else is affected by the result.
If he is successful the rewards are his; if he fails he bears the loss. But let him attempt to
practice a profession and, if he be unskillful, others are directly affected, and the fact that his
reward is diminished thereby is merely incidental to the fact that others suffer.

Ethics of the business.—but whether real estate be a business or a profession has no

connection at all with the body of ethics governing it.

Every business can be conducted upon a plane ethically as high as the ideals of any
profession, and the men who have been conspicuously successful in the real estate business
have attained success because they have applied to their business the highest ideals of
commercial fair dealing. This does not mean that there is any ethical requirement for the
seller or the purchaser to give away anything which belongs to him, or for either one to
disclose to the other his necessity for selling or his requirements for buying; but the bargain
having been made, it is absolutely necessary that it be lived up to by both parties, according
to its intent; and, if there be any doubt of the intent of the bargain as it is expressed in writing,
that the spirit of the transaction be carried out rather than that the catch words of a written
instrument should govern. Cases are frequent of men who to their own detriment perform the
thing which they have promised to do although not legally obligated, and the bigger and more
successful the man who makes the promise the more surely will it be carried out. Important
obligations are often incurred upon the mere promise of a well-known man to sell an
important piece of property at a definite price, although no legal and enforceable obligation
exist; and the promise is always redeemed if it is made by a man who knows the business,
and it is redeemed not merely from altruistic motives, but also for purely business reasons.

Divisions of the business.—The principal divisions of the real estate business are investment,
operation and agency. These differ from one another according to the aims of the persons
engaging in them and the methods by which those persons expect to make their gains. To
conduct either of the first two divisions of the business, investment or operation, actual
money capital is required. The most important capital in the agency business is the good will
of its customers, and that can be husbanded, increased and made very valuable.

Investment is the employment of capital in the acquisition of real estate or interests therein
for permanent ownership or actual use of the person acquiring it.

Operation is the employment of capital in the acquisition or improvement of real estate or

interests therein for commercial operations.

Agency is dealing in or with real estate on behalf of others.

Investment in real estate is generally made for either of two purposes :

(a) to derive an income,

(b) to hold for resale in expectancy of an increase in value.

Investment for income may be for one of two purposes,

(1) the derivation of rental—that is, the direct return for the use of real property for definite
periods, or

(2) the obtaining of income through others upon money lent on the security of real property.

Operation.—Real estate operation may be carried on

(a) for the purchase and sale of land,

(b) for the purpose of building,

(c) for the purpose of lending money upon mortgages.

The purchase and sale of land is that branch of operation which concerns itself with dealing
in land as a thing to be bought and sold for profit and loss. It may be divided into two parts :
(1) Speculation, pure and simple, by which land is bought in the hope of a rise in value and
resold when that hope is either realized or known to be unfounded.

(2) Development of land, the most conspicuous part of which is the development of vacant
tracts by buying them wholesale in their wild condition, making them marketable by bringing
them to such a state of development as is implied by putting streets through them, pre-paring
them for use and then selling them in small parcels. This is a most important and useful part
of the commercial side of the real estate business, and has resulted in the development and
settlement of many parts of the country.

That portion of real estate operation which concerns itself in building may be similarly
divided into,

(a) Speculative building which consists in building structures primarily for sale, and not
necessarily for the use of the constructor, and

(b) Building for investment which consists of the erection of structures for rental or primarily
for the use of the person conducting the operation.

That form of operation which is concerned with the lending of money upon real estate
security is divided into two parts,

(a) the making of permanent loans,

(b) the making of building or temporary loans.

1.1.3. Z-Score History

A predictive model created by Edward Altman in the 1960s. This model combines five
different financial ratios to determine the likelihood of bankruptcy amongst companies.

In 1966 Altman selected a sample of 66 corporations, 33 of which had filed for bankruptcy in
the past 20 years, and 33 of which were randomly selected from those that had not. The asset
size of all corporations ranged from $1 million to $26 million...approximately $5 million to
$130 million in 2005 dollars.
Altman calculated 22 common financial ratios for all 66 corporations. (For the bankrupt
firms, he used the financial statements issued one year prior to bankruptcy.) His goal was to
choose a small number of those ratios that could best distinguish between a bankrupt firm and
a healthy one.

To make his selection Altman used the statistical technique of multiple discriminant analysis.
This approach shows which characteristics in which proportions can best be used for
determining to which of several categories a subject belongs: bankrupt versus no bankrupt,
rich versus poor, young versus old, and so on.

The advantage to MDA is that many characteristics can be combined into a single score. A
low score implies membership in one group, a high score implies membership in the other
group, and a middling score causes uncertainty as to which group the subject belongs.

Finally, to test the model, Altman calculated the Z Scores for new groups of bankrupt and no
bankrupt firms. For the no bankrupt firms, however, he chose corporations that had reported
deficits during earlier years. His goal was to discover how well the Z Score model could
distinguish between sick firms and the terminally ill.

Altman found that about 95% of the bankrupt firms were correctly classified as bankrupt.
And roughly 80% of the sick, no bankrupt firms were correctly classified as no bankrupt. Of
the misclassified no bankrupt firms, the scores of nearly three fourths of these fell into the
gray area.

1.1.4. Altman z-score definition and explanation:

The most well-known quantitative model for predicting bankruptcy is Altman's Z-score,
which was developed in 1968 by Edward I. Altman, professor at Stern School of Business.
The Z-score is a set of financial ratios in a multivariate context, based on a multiple
discriminated model, for the firms where a single measure is unlikely to predict the
complexity of their decision making or the scope of their entire activities.
Altman examined a list of twenty two possible ratios, and finally has chosen five that had the
best results when they were applied together were selected after numerous tests for the
discriminant Research Journal of International Studies - Issue 12 (October, 2009) 24 function.
This model was later modified to the Altman (1993) model that uses the same variables
multiplied by different, however, factors.
The discriminant function is:

Z = 0.717 X1 + 0.847 X2 + 3.107 X3 + 0.420 X4 + 0.998 X5……………………………………… (1)

Given that:
X1 = Working Capital / Total Assets, (WC/TA)
X2 = Retained Earnings / Total Assets, (RE/TA)
X3 = Earnings Before Interest and Taxes / Total Assets, (EBIT/TA)
X4 =Market Value Equity or Book Value / Total Liabilities, (MVE/TL) and
X5 = Sales / Total Assets, (S/TA)
Altman defined a “grey area” which is between 1.81 and 2.99. Firms, with z-scores within
this range, are considered uncertain about credit risk and considered marginal cases to be
watched with attention. Firms with Z scores below 1.81 indicate failed firms. Although, the
cut-off point was set at2.675, Altman advocates using the lower bound of the zone-of-
ignorance (1.81) as a more realistic cutoffs-Score. So if Z < 1.81, then the company has a
high probability of default.
On the other hand, the company is solvent, meaning that it is financial healthy. Some credit
analysts, private underwriting agents, financial analysts, auditors and firms themselves were
concerned that since the original model requires stock price data (X5), it was only applicable
to publicly traded entities.

1.1.5. The Z Score Ingredients

The Z Score is calculated by multiplying each of several financial ratios by an appropriate

coefficient and then summing the results. The ratios rely on these financial measures:

 Working Capital is equal to Current Assets minus Current Liabilities.

 Total Assets is the total of the Assets section of the Balance Sheet.
 Retained Earnings is found in the Equity section of the Balance Sheet.
 EBIT (Earnings Before Interest and Taxes) includes the income or loss from
operations and from any unusual or extraordinary items but not the tax effects of these
items. It can be calculated as follows: Find Net Income; add back any income tax
expenses and subtract any income tax benefits; then add back any interest expenses.
 Market Value of Equity is the total value of all shares of common and preferred stock.
The dates these values are chosen need not correspond exactly with the dates of the
financial statements to which the market value is compared.
  Net Worth is also known as Shareholders' Equity or, simply, Equity. It is equal to
Total Assets minus total liabilities.
 Book Value of Total Liabilities is the sum of all current and long-term liabilities from
the balance sheet.
 Sales include other income normally categorized as revenues in the firm's Income
Statement.
1.2. LITERATURE REVIEW

Multivariate prediction of bankruptcy as established by using univariate analysis of

bankruptcy predictors was initially developed by beaver(1967,1968)who found that a number
of indicators could discriminate between matched samples of failed and non-failed firms for
as long as three years prior to failure.
Altman (1968) defines five predicted factors and sets the base for other researchers to
examine the validity of Altman models, but their prediction ability is gradually found lower.
Begley et.al (1996) examines the Altman z-model and concludes that the model performs
better in US data during the 1980s than during the period 1990-1995. Similar are the findings
of Grice and Ingram (2001), who also find better performance for manufacturing companies.
Altman’s Z is one of the best known, statistically derived predictive models used to forecast a
firm’s impending bankruptcy (Moyer, 2005). Edward Altman, a financial economist and
professor at New York’s Stern School of Business, developed Altman’s Z (the Z-Score) in
1968.The Z-Score gained acceptance by auditors, management accountants, and database
systems beginning in the mid-1980s. Although, Altman originally developed the Z-Score
based on a small sample of manufacturing firms, some research seems to show that it is
useful in other areas, such as healthcare, with some modifications (Al-Sulaiti &Almwajeh,
2007).
Altman’s Z-Score formula is a multivariate formula used to measure the financial
health of a company and to diagnose the probability that a company will go bankrupt within a
two-year period. Studies of Altman’s Z have yielded mixed results, and recent literature
questions whether or not the formula, tested in the mid-twentieth century on manufacturing
firms, is useful in today’s marketplace.
The Z-Score uses various accounting ratios and market-derived price data to predict
financial distress and future bankruptcy. The original formula was developed on a sample of
66 manufacturing firms, half of which filed Chapter 7 bankruptcy. Firms with assets of less
than $1 million were eliminated from the sample. The Altman’s Z formula works well
provided the scores fall within the “in the tails,” meaning that low and high scores may more
accurately predict financial distress than scores that fall in the gray area. More moderate
scores may be easily misclassified (Moriarty, 1979). In the early 2000s, Altman amended the
formula to allow its application to certain situations not originally included in the original
sample set (Altman, 2006).
The Altman Z-Score, based on discriminant analysis, includes basic financial ratios as
inputs (Calandro, 2007). To determine the formula, Altman utilized five common business
ratios and systematically weighted them in his calculations. Some research has shown that the
model is 72 to 80 percent accurate in predicting bankruptcy one to two years in advance. The
accuracy rate depends largely on the industry and other factors relevant to the industry.
In response to requests for a measure to predict the likelihood of bankruptcy for non-
manufacturing firms, Altman developed the Z” Model, (Altman & Hotchkiss 2006). This
alternative model was designed for non-manufacturing industrials. This is model that was
employed in the investigation reported in this study.
Altman’s Z is commonly employed to assess financial distress. Altman’s Z is a
weighted composite of financial indicators relating to profitability, revenue, slack resources,
and market return (Altman, 1968). When interpreting Altman’s Z-Score, higher values
indicate that firms “carry out more actions at a fast pace, while low scores indicate that firms
carry out few total actions and respond slowly” (Ferrier, Mac Fhionnlaoich, Smith, & Grimm,
2002). In this section, we discuss the different cutoff criteria for interpreting the score.
Early scholars criticized Altman’s formula as having a poor record as predictor
despite Altman’s explanation for a bankruptcy. Altman claimed that predictions varied due to
the instability of relationships among the variables within the equation over time. Statistical
models based on financial data may appear to describe events, but they are not necessarily
good at predicting outcomes (Moyer, 1977). For example, in a study with public accounting
professionals, Altman’s Z was found to misclassify over 50 percent of the firms used in the
study as bankrupt and 29 percent as not bankrupt (Moriarty, 1979). Wang Yi (2012), in his
study of financial risk in China’s real estate companies suggested the use of the new z-score
model which earlier gave high prediction accuracy in American enterprises. The empirical
analysis indicated that in financial engineering filed z-score model is suitable for early
warning of China’s real estate companies to some extent, but the accuracy rate is not very
high. Mainly due to the difference between China and US securities markets, the model
established with the financial data of listed US companies is not very suitable for the research
of financial early warning system of China’s listed companies; secondly, Z-score early
warning model published by Altman fits listed non-manufacturing companies, but those listed
nonmanufacturing companies, which cover many different industries, have not been
classified in a detailed way, so this model has very low practicality. Many enterprises have
faced crisis after global financial crisis in which many risk models broke down, it should be
better to figure out how to create better risk prediction models in the perspective of financial
engineering. Ying Wang and Mike Campbell (2010) The results are encouraging in that all
the z-score models we examined and the PBT model have significant ability to predict firm
delisting. According to Ming Xu & Chu Zhang (2008); Accounting variables used in
Altman’s Z-score Ohlson’s O-score and the option pricing theory-based distance-to-default
measure, previously developed for the U.S. market, are useful in predicting bankruptcy of
Japanese companies.
As a result of these and other similar findings, the formula was studied for use in
different industry contexts.
Though this model was effective enough Altman revised the old model twice and
finally established two models: financial failure model for non-listed companies and financial
failure for listed companies. In his study proved by many empirical studies, these two models
have high prediction accuracy in American enterprises. The New Z-score model function of
listed non-manufacturing companies is as follows:
𝑍 ′′ = 6.65𝑋1 + 3.26𝑋2 + 6.72𝑋3 + 1.05𝑋4………………………………………………. (2)
𝑋1 = (𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐴𝑠𝑠𝑒𝑡𝑠/ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 )
𝑋2 = (𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 / 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 )
𝑋3 = (𝐸𝐵𝐼𝑇/ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 )
𝑋4 = (𝑂𝑤𝑛𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦/ 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 )
If, 𝑍′′ ≤ 1.23, then there is a high bankruptcy probability; if the z-score lies between 1.23 and
2.9 i.e., 1.23 ≤ 𝑍′′ ≤ 2.9, then the financial status of the company is unstable and if the z-
score is greater than 2.9 i.e., 2.9 ≤ 𝑍′′,then the financial status is considered to be stable.
In a test of Altman’s Z in a more current business climate, Grice and Ingram (2001)
found inconsistent results. In response to their research questions: (1) the formula was not
found to be as useful in predicting distress in more contemporary firms than when first
developed (2) nor was it as effective in predicting bankruptcy for non-manufacturing as for
manufacturing firms. The formula was found to be as useful in predicting bankruptcy as it
was to predict other distress conditions.
1.2.1. Performance Literature
Although Altman’s Z is typically used to predict bankruptcy, it is “also an important
multidimensional measure of strategic performance” (Chakravarthy, 1986) in that it is a
“composite measure of profitability, cash flow, slack, and stock market factors (Altman,
1968). High Z scores indicate strong financial health while low scores indicate financial
distress (Ferrier et al., 2002).
Altman’s Z has also been used to explore the potential for bankruptcy in hospitals. The study
using hospitals revealed that both discriminant analysis and logistic regression models are
able to predict service organizations’ success or failure, with the latter being more predictive
in a sample of 65 hospitals (Al-Sulaiti, &Almwajeh, 2007). Liquidity and profitability ratios
had the highest contribution to the results of the Z-score, followed by productivity and
efficiency.
In 2007, Kim studied the robustness of the Altman’s Z-Score model under the assumption
that it was no longer significant due to market factors. Kim found that the Z-Score seems to
be a predictor of financial distress in firms one year prior to bankruptcy, but that the
calculations needed to be used with caution because of the significance of some of the
variables. Kim cautions that Z-Score predictions for periods longer than one year have lost
some of their significance. In a study of South Korean firms, a low Altman’s Z-score was
found to be a significant predictor of financial distress for those firms using the soft budget
constraint (SBC), such as in bank lending (i.e., a financially distressed firm can continue to
borrow from its bank) (Alexeev& Kim, 2008)

Carton and Hofer (2006) investigated a variety of common performance metrics. The optimal
metric for providing “the greatest relative information about the market-adjusted return to
shareholders” was found to be Altman’s Z-Score. Altman’s formula appeared to rate higher
than other performance metrics such as the widely used return ratios (i.e., ROE & ROA),
economic profit, growth rate of sales, cash flow, and expenses. Carton and Hoffer’s primary
message is that Altman’s Z-score is more than a financial distress predictor; it is also
efficacious as a performance management tool.

1.3. DATA ISSUES AND METHODOLOGY

In this research study the sampling universe is the Real estate companies in india. Sampling
unit-Selected real estate companies list on NSE i.e. Omaxe, DLF, Unitech, Ansal API,
Indiabulls. For this research purpose secondary data is collected &used. The data is collected
from annual reports for the periods (2007- 2011) of the selected companies mentioned above.
Besides this data is being collected from website like money control & yahoo finance also.
However in the present study, Predictive test Z score is applied to check the financial health
of the selected companies.

1.4. ANALYSIS AND INTERPRETATION OF DATA

To analyze the data tool used in this research is Altman z-score model.

TABLE-1: COMPARATIVE Z – SCORE OF 5 REAL ESTATE COS. (UNDER NEW Z-

SCORE MODEL)

ANSAL INDIA
F/Y OMAXE API UNITECH BULLS DLF
Mar-07 1.777 1.920 2.770 0.970 1.120
Mar-08 1.598 1.720 1.440 1.880 1.940
Mar-09 0.666 0.740 1.340 0.190 1.550
Mar-10 0.705 0.680 0.930 0.170 1.110
Mar-11 0.841 0.680 0.890 0.250 1.180
Mar-12 7.283 0.980 0.560 0.240 1.040
Source: Author’s own work
1.5. FINDINGS

In the present study, Altman z-score was applied on selected real estate companies listed on
NSE. According to Altman a company falls into the following zones:
If the value of
𝑍 ′′ > 2.9 − Stable Zone
1.23 ≤ 𝑍 ′′ ≤ 2.9 − 𝑈𝑛𝑠𝑡𝑎𝑏𝑙𝑒 𝑍𝑜𝑛𝑒
𝑍 ′′ < 1.23 − 𝐵𝑎𝑛𝑘𝑟𝑢𝑝𝑡𝑐𝑦 𝑍𝑜𝑛𝑒
Z < 1.23 -“Distress” Zone

The findings are summarized as below:

For Omaxe, during the period of study it was find out the company is moving towards danger

Zone. As it Z score has declined sharply from 1.78 (2007), 1.60 (2008), 0.67 (2009), 0.71

(2010), 0.84 (2011) & 7.28 (2012) on yearly basis. Company is moving toward insolvency as
per z scores in the years 2007, 2008, 2009, 2010 and 2011 respectively. However, conditions

drastically improved in the year 2012 due to upcoming projects and cash inflows, just drifting

towards the Safe Zone.

For Ansal API, during the period of study it was found out the company is moving towards

danger Zone. As it Z score has fluctuate sharply from 1.92 (2007), 1.72 (2008), 0.74 (2009),

0.68 (2010), 0.68 (2011) & 0.98 (2012) on yearly basis. Company is moving toward

insolvency as per z scores.

For Unitech during the period of study it was found Company is also moving towards danger

Zone. As it Z score has declining sharply from 2.77 (2007), 1.44 (2008), 1.34 (2009), 0.93

(2010), 0.89 (2011) & 0.56 (2012) on yearly basis. Company is moving toward insolvency as

per z scores of the respective years.

For Indiabulls, during the period of study it was find out the company is moving towards

Distress Zone. As it Z score has fluctuate sharply from 0.97 (2007), 1.88 (2008), 0.19 (2009),

0.17 (2010), 0.25 (2011) & 0.24 (2012) on yearly basis. Company is moving toward

insolvency as per z scores.

For DLF - during the period of study it was found that the company is also moving towards

Distress Zone. As it Z score has declining throughout the period of study i.e., 1.12 (2007);

1.94 (2008); 1.55 (2009); 1.11 (2010); 1.18 (2011) & 1.04 (2012). Company is moving

toward insolvency as per z scores.

1.6. CONCLUSION

Real estate sector in India are risky one, because in real estate sector, land are very costly,

Project completion time is very lengthy. Most of the real estate companies are operating with

heavy debt burden with them.

In this sector, the returns are very low due to intense pressure on the companies; projects are

normally delayed due to labour problems and approval from the Government authorities.

Most of the firms taken under study are in distress zone as it is clearly visible from the above

tables. Most of the firms have suffered due to the predatory lending and improper valuation

of assets, the economic meltdown has also impacted the industry in the F/Y 2008 however a

few companies with effective business models and proper documentation survived the thrift

i.e. India Bulls. In the F/Y 2012, Omaxe due to upcoming new projects and improved

finances is in the safe zone. On the otherhand, the overall effect of huge interest payments

and debt inclusion in capital structure of the firms also resulted in the poor performance.

Most of these real estate firms as per our results are not going to survive in the industry for a

long run. However, time to time policy review from the Govt. has helped these companies.

So, finally to infer investors show a negative sentiment in the above companies’ scrips and

the government has to think seriously about these private firms to make them sustainable in

the long run. Lack of invest etc.

Most of the firms taken under study are in distress zone as it is clearly visible from the above

tables. Most of the firms have suffered due to the predatory lending and improper valuation

of assets, the economic meltdown has also impacted the industry in the F/Y 2008 and

continued its thrift till F/Y 2011, the effect is very much catastrophic. The Operating Assets

are only of a mere percentage of the total assets, which means that most of the assets are in

the shape of Investments and current assets. This in turn is increasing the cost of capital of the

real-estate firms taken under study. However, a few companies with effective business

models and proper documentation survived the thrift i.e. Unitech and Ansal API. In the F/Y

2012, Omaxe due to upcoming new projects and improved finances is in the safe zone. On

the other hand, the overall effect of huge interest payments and debt inclusion in capital

structure of the firms also resulted in the poor performance. Most of these real estate firms as
per our results are not going to survive in the industry for a long run. However, time to time

policy review from the Govt. has helped these companies. So, finally to infer investors show

a negative sentiment in the above companies’ scrips and the government has to think

seriously about these private firms to make them sustainable in the long run.

An attempt is made to check the financial health of selected real estate companies (Omaxe,

Ansal API, Unitech, Indiabulls, DLF) with the help of Altman’s Z score and it is concluded

that almost are the companies are in to danger zones. We can find out that Z score is helpful

in predicting the financial health of the companies.

1.7. REFERENCES

Altman, E., (1968), "Financial Ratios, Discriminant Analysis and the Prediction of Corporate

Bankruptcy," Journal of Finance. 23, 589–609.

Altman, E., (1993), Corporate Financial Distress and Bankruptcy, Second Edition, John

Wiley & Sons, New York.

Altman, Edward I.,(2000) Predicting Financial Distress of Companies: Revisiting the Z-score

& Zeta Models.1, 21-22.

Beaver, W., (1967), Financial Ratios as Predictors of Failure, Empirical Research in

Accounting: Selected Studies, Supplement, Journal of Accounting Research 5, 71-127.

Beaver, W., (1968), Alternative Financial Ratios as Predictors of Failure, Accounting Review

XLIII, 113-122.

Begley J., Ming J. and Watts S.,( 1996) ,Bankruptcy classification errors in the 1980s: An

empirical analysis of Altman's and Ohlson's models, Review of Accounting Studies, pp 267-

284.
Christopoulos, A., Vergos K., and J. Mylonakis, (2008) “Empirical investigation of the

business effects of announcements to share prices”, The Journal of Money, Investment and

Banking, 2, 37-47.

Christopoulos, A., Vergos K., and Kotsiri, K., (2009), “Liberalization of the fixed voice

telephony and the possible effects on the Greek telecommunications sector in the long run”,

International Journal of Trade in Services (IJTS), 1.

Christopoulos, A., Vergos, K., (2006), "How stock prices react to managerial decisions and

other profit signaling events, in the Greek mobile telecom market?” 3rd International

Conference on Applied Financial Economics, Samos island.

Chu-tang, Zhang & Zhi-qiang, Yang, (2009). Financial Analysis of State-owned Companies

Based on Z-Score Model. Journal of Wuhan University of technology, 4, 34-37.

Grice and Ingram, (2001) “Test of the Generalizability of Altman’s Bankruptcy. Prediction

Model,” Journal of Business Research, 10, 53-61.

Vergos, K., Christopoulos A., and J. Mylonakis, (2008), “The Impact of Publicity and

PressAnnouncements on Share Prices: An Empirical Study”, The Icfaian Journal of

ManagementResearch,VII No 3, 35-55.

Vergos, K., Christopoulos, A., (2008). “The effects of acquisitions on the market value of the

banking sector: An empirical analysis from Greece”, European Journal of Scientific Research

(EJSR), 24, 3.

Wang Yi, (2012). Z-score Model on Financial Crisis Early Warning of Listed Real Estate

Companies in China: A Financial Engineering Perspective. Systems Engineering Procedia.3,

153-157.

Wang, Yang & Campbell, Mike (2010). Do Bankruptcy Model Really Have predictive

ability? Evidence using China Publicly listed Companies. International Management Review.

6, No. 2, pp. 81-82

Xu, Ming & Zhang, Chu (2008). Bankruptcy prediction: the case of Japanese listed

companies. Springer Science+ Business Media, LLC. pp. 556. DOI 10.1007/s11142-008-

9080-5.

1.8. WEBSITE LINKS

http://www.moneycontrol.com/financials/unitech/balance-sheet/U#U

http://www.moneycontrol.com/financials/unitech/profit-loss/U#U

http://www.moneycontrol.com/financials/omaxe/balance-sheet/O02#O02

http://www.moneycontrol.com/financials/omaxe/profit-loss/O02#O02

http://www.moneycontrol.com/financials/ansalpropertiesinfrastructure/balance-
sheet/API07#API07

http://www.moneycontrol.com/financials/ansalpropertiesinfrastructure/profit-
loss/API07#API07

http://www.moneycontrol.com/financials/dlf/balance-sheet/D04#D04

http://www.moneycontrol.com/financials/dlf/profit-loss/D04#D04

Real estate": Oxford English Dictionary online: Retrieved September 18, 2011

http://en.wikipedia.org/wiki/Real_estate

TABLE 2: CALCULATION OF Z SCORE FOR OMAXE

(Value in Rs. Crore)

Mar-
ITEMS Mar-12 Mar-11 Mar-10 Mar-09 Mar-08
07

TOTAL ASSETS 2,174.84 2727.43 2942.1 2929.42 2976.37 1235.35

TOTAL LIABILITIES 2,174.84 2727.43 2942.1 2929.42 2976.37 1235.35
OPERATING ASSETS 31.8 27.63 24.45 25.59 25.36 27.68
RETAINED EARNINGS 4527.26 477.81 425.3 378.31 425.73 237.27
EBIT 77.09 81.48 77.48 80.69 472.57 182.88
MARKET VALUE OF
EQUITY or OWNER'S 334.31 3.6 5.23 4.5 22.98 8.06
EQUITY
X1= (Operating Assets /
0.01 0.01 0.01 0.01 0.01 0.02
Total Assets)
X2= (Retained earnings /
2.08 0.18 0.14 0.13 0.14 0.19
Total Assets)
X3= (EBIT / Total Assets) 0.04 0.03 0.03 0.03 0.16 0.15
X4= (Owner's Equity / Total
0.15 0.00 0.00 0.00 0.01 0.01
Liabilities)
Z'' Values Under NEW Z-SCORE
7.28 0.84 0.71 0.67 1.60 1.78
MODEL

(Compiled from Various Annual Reports & Author’s own calculations)

TABLE 3: CALCULATION OF Z SCORE FOR ANSAL API

(Value in Rs. Crore)

Mar-
ITEMS Mar-12 Mar-11 Mar-10 Mar-09 Mar-08
07

TOTAL ASSETS 2,183.76 2,941.39 2,575.84 2,293.01 1,910.84 1,172.74

TOTAL LIABILITIES 2,183.76 2,941.39 2,575.84 2,293.01 1,910.84 1,172.74
OPERATING ASSETS 108.97 103.74 105.07 116.14 135.66 30.27
RETAINED EARNINGS 205.04 151.04 119.06 134.42 213.84 143.87
EBIT 106.78 116.02 87.48 66.81 225.36 193.65
MARKET VALUE OF
EQUITY or OWNER'S 33.84 39.00 71.60 25.00 161.50 267.50
EQUITY
X1= (Operating Assets / Total
0.05 0.04 0.04 0.05 0.07 0.03
Assets)
X2= (Retained earnings /
0.09 0.05 0.05 0.06 0.11 0.12
Total Assets)
X3= (EBIT / Total Assets) 0.05 0.04 0.03 0.03 0.12 0.17
X4= (Owner's Equity / Total
0.02 0.01 0.03 0.01 0.08 0.23
Liabilities)
Z'' Values Under NEW Z-SCORE
0.98 0.68 0.68 0.74 1.72 1.92
MODEL

(Compiled from Various Annual Reports & Author’s own calculations)

TABLE 4: CALCULATION OF Z SCORE FOR UNITECH

(Value in Rs. Crore)

Mar- Mar- Mar-

ITEMS Mar-12 Mar-11 Mar-10
09 08 07
 10,538. 10,261. 4,766.0
TOTAL ASSETS 167,805.18 14,850.93 13,051.97
55 35 6
10,538. 10,261. 4,766.0
TOTAL LIABILITIES 167,805.18 14,850.93 13,051.97
55 35 6
OPERATING ASSETS 70.59 104.49 107.06 107.84 96.09 69.63
RETAINED EARNINGS 28222.85 2312.7 2005.37 2109.77 1417.03 1071.81
EBIT 284.7 728.17 715.65 958.12 1365.54 1346.7
MARKET VALUE OF
EQUITY or OWNER'S 52.33 41.50 73.00 35.05 292.00 199.50
EQUITY
X1= (Operating Assets / Total
0.00 0.01 0.01 0.01 0.01 0.01
Assets)
X2= (Retained earnings / Total
0.17 0.16 0.15 0.20 0.14 0.22
Assets)
X3= (EBIT / Total Assets) 0.00 0.05 0.05 0.09 0.13 0.28
X4= (Owner's Equity / Total
0.00 0.00 0.01 0.00 0.03 0.04
Liabilities)
Z'' Values Under NEW Z-SCORE
0.56 0.89 0.93 1.34 1.44 2.77
MODEL

(Compiled from Various Annual Reports & Author’s own calculations)

TABLE 5: CALCULATION OF Z SCORE FOR INDIA BULLS

(Value in Rs. Crore)
ITEMS Mar-12 Mar-11 Mar-10 Mar-09 Mar- Mar-
08 07

TOTAL ASSETS 6,610.93 7,647.56 6,526.27 5,296.28 2,840.21 840.39

TOTAL LIABILITIES 6,610.93 7,647.56 6,526.27 5,296.28 2,840.21 840.39
OPERATING ASSETS 13.79 15.62 16.9 19.29 17.97 15.44
RETAINED EARNINGS 292.41 365.34 197.80 193.69 195.82 76.23
EBIT 66.62 67.9 25.6 23.41 603.28 18.65
MARKET VALUE OF EQUITY 94.80 123.20 155.90 94.40 504.50 319.60
or OWNER'S EQUITY
X1= (Operating Assets / Total 0.00 0.00 0.00 0.00 0.01 0.02
Assets)
X2= (Retained earnings / Total 0.04 0.05 0.03 0.04 0.07 0.09
Assets)
X3= (EBIT / Total Assets) 0.01 0.01 0.00 0.00 0.21 0.02

X4= (Owner's Equity / Total 0.01 0.02 0.02 0.02 0.18 0.38
Liabilities)
Z'' Values Under NEW Z-SCORE 0.24 0.25 0.17 0.19 1.88 0.97
MODEL

(Compiled from Various Annual Reports & Author’s own calculations)

 TABLE 6: CALCULATION OF Z SCORE FOR DLF

(Value in Rs. Crore)

Mar-
ITEMS Mar-12 Mar-11 Mar-10 Mar-09 Mar-08
07

TOTAL ASSETS 26,471.67 28,870.03 25,467.85 21,989.80 19,655.56 7,422.10

TOTAL LIABILITIES 26,471.67 28,870.03 25,467.85 21,989.80 19,655.56 7,422.10

OPERATING ASSETS 2088.49 1743.1 1729.01 1815.53 1474.38 328.57
RETAINED EARNINGS -7.15 3636.97 3090.44 2944.19 2046.03 531.76

EBIT 1,970.13 1,548.52 938.90 1,806.17 3,117.83 620.23

MARKET VALUE OF
EQUITY or OWNER'S 354.17 264.50 312.00 168.00 695.70 199.51
EQUITY
X1= (Operating Assets / Total 0.08 0.06 0.07 0.08 0.08 0.04
Assets)
X2= (Retained earnings / Total 0.00 0.13 0.12 0.13 0.10 0.07
Assets)
X3= (EBIT / Total Assets) 0.07 0.05 0.04 0.08 0.16 0.08

X4= (Owner's Equity / Total 0.01 0.01 0.01 0.01 0.04 0.03
Liabilities)
Z'' Values Under NEW Z-
1.04 1.18 1.11 1.55 1.94 1.12
SCORE MODEL

(Compiled from Various Annual Reports & Author’s own calculations)

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