Using Altman and Sherrod Models in Predicting Financial Distress of Industrial Listed Firms: A Case from Palestinian Exchange رسالة ماجستير

Abstract

The study sought to investigate the application of the Altman and Sherrod models in predicting financial distress for industrial companies listed on the Palestine Exchange, using a case study approach. A descriptive-analytical methodology was adopted, and the research utilized a comprehensive survey method on (11) companies from the industrial sector in the Palestine Exchange, including pharmaceutical, cardboard, plastic, and vegetable oil companies, among others. A quantitative content analysis was conducted to evaluate each company's sustainability reports, utilizing secondary data extracted from annual reports. Stata 15 was used for statistical analysis, with descriptive tests, Pearson's test, multiple regressions, and the Breusch-Pagan test applied to the extracted financial data. The results revealed that Bezeit and Jerusalem companies showed significant improvements in their financial health, with stable Altman and Sherrod model values. Bezeit’s values increased over time, while Jerusalem’s values also rose, reflecting financial growth. Beth Jala and Cartoon companies have shown recent improvements, though with fluctuations. Napco and Plastics companies experienced continuous deterioration, increasing financial risks. Vegetable Oils and Aziza achieved strong stability, while Golden Wheat and Jerusalem Cigarettes displayed diverse results, indicating financial challenges. Statistical analysis indicated that an increase in the ratio of retained earnings to tangible assets and the market value of shareholders' equity to total liabilities positively affects earnings per share (EPS), highlighting the importance of strong earnings retention and financial structures in enhancing profitability. Additionally, improving the financial structure and increasing assets relative to liabilities, as well as net income before interest and taxes, are associated with better financial performance. Conversely, managing working capital and increasing sales negatively impacted EPS, suggesting these strategies may not significantly enhance profitability. The weak positive effect of earnings before interest and taxes on tangible assets indicates limited operational efficiency benefits. Increases in current assets, net working capital, and total shareholders' equity to total assets also negatively affect EPS, underscoring the need for alternative strategies to improve financial performance. Based on these findings, the following recommendations are proposed: Companies should continue to implement financial improvement strategies that have contributed to current gains to ensure sustainable financial stability. It is advisable to strengthen current asset management and working capital to reduce volatility and achieve better stability. Improving operational efficiency and resource utilization effectiveness is essential to achieve better returns and reduce financial risks