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Considering the utility of Altman's Z‐score as a strategic assessment and performance management tool

Joseph Calandro Jr (Enterprise Risk Manager for ACE American Insurance Company (Joseph.Calandro@ ace‐ina.com) and a member of the Finance faculty of the University of Connecticut)

Strategy & Leadership

ISSN: 1087-8572

Article publication date: 11 September 2007

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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 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

Citation

Calandro, J. (2007), "Considering the utility of Altman's Z‐score as a strategic assessment and performance management tool", Strategy & Leadership, Vol. 35 No. 5, pp. 37-43. https://doi.org/10.1108/10878570710819206

Publisher

:

Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited