Enyi , P. E.
(2008)
A Comparative Analysis Of The Effectiveness Of Three Solvency Management Models.
Unspecified.
Abstract
The introduction of the Altman’s Z-score model in 1983 and much recently the Enyi’s Relative
Solvency Ratio model in 2005 has divergently provided financial analysts with alternative
methods of analyzing corporate solvency which hitherto was exclusively done using the
traditional historical record based ratio analysis, with particular reference to the current ratio. To
test the relevance and effectiveness of the three models, real life performance data were extracted
from the annual reports of 7 quoted companies, analyzed using the three models and the results
compared to show the strengths and weaknesses of each. The result revealed that the current ratio
and the Z-score models suffer from many limitations including imprecision while the Relative
Solvency Ratio combines the capability of an effective indicator with the precision required of a
true predictor.
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