Considering the Utility of Altman's Z-Score as a Strategic Assessment and Performance Management Tool

Abstract

Purpose: The purpose of this article is to provide commentary on the utility of Altman's Z-score as a strategic assessment and performance management tool. This possibility is suggested in the recently published book Measuring Organizational Performance - Metrics for Entrepreneurship and Strategic Management Research (Northampton, MA: Edward Elgar, 2006) by Robert B. Carton and Charles W. Hofer.

Design/methodology/approach: This paper is a corporate manager's analysis of the utility of Altman's Z-score as a strategic assessment and performance management tool based on published research, with suggestions for further research.

Findings: The analysis supports Carton and Hofer's findings with respect to the utility of the Z-score as a strategic assessment and performance management tool.

Practical and research implications: While the Z-score is both popular and widely used in the fields of credit risk analysis, distressed investing, M&A target analysis, and turnaround management it has received relatively little attention as a strategic assessment and performance management tool. The findings of Carton and Hofer's study, in conjunction with the impressive results achieved by GTI Corporation, suggest that applying the Z-score in strategy and performance management may also be warranted, especially after more research is undertaken.

Originality/value: This article offers a manager's perspective on new research that indicates the potential of a popular financial distress metric to provide insight in the areas of entrepreneurship and strategic management.

Keywords: Performance Measurement, Z-score, Strategy

JEL Classification: G30, L20, M10