Turnaround Strategy Using Altman Model as a Tool in Solar Water Heater Industry in Karnataka

The sale of goods on credit is an essential part of the modern competitive economic systems. The credit sales are generally made on open account, in the sense that, there are no formal acknowledgements of debt obligations through a financial instrument. As a marketing tool they are intended to promote sales and there by profits. However, extension of credit involves risk and cost. It is easy for the organization to provide credit sale but collecting amount from customers is difficult. If there is no proper credit evaluation, default rate will increase. This paper analyses whether Altman Z score model can predict correctly, the failure of customers. The study is based on sample of 50 customers of M/s. Nuetech, during the period 2006-09. This study shows that Altman model performs well in predicting failures. The empirical results are interesting since they can be used by the organization in selecting the customers and assess their credit worthiness.