Analysis on the Performance of Technology Companies with Z-score Model

Lam Weng Hoe,Chen Jia Wai,Lam Weng Siew,Yeoh Hong Beng

doi:10.11591/eei.v7i4.1353

Lam Weng Hoe, Chen Jia Wai + Show 2 more

Open Access

https://doi.org/10.11591/eei.v7i4.1353

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Abstract

Local technology sector plays a significant role in information and communication technology (ICT) based innovations and applications which enhance organizational performance as well as national economic growth and labor productivity. In this paper, financial performance of the listed Malaysia companies in technology sector is analyzed and evaluated. Altman’s Z-score model is proposed due to its robustness in determining companies’ financial distress level using five financial ratios as variables. The computed Z-score values classify the financial status of the companies into distress, grey and safe zones. This study investigates the financial data of 23 listed technology-based companies in the Main Market of Bursa Malaysia over the period of 2013 to 2017. The findings reveal that the percentage of safe zone companies increase throughout the five years whereas distress zone companies decline. It is concluded that financial ratio for market value of equity to total liabilities is the dominant factor that directly influences the level of financial distress among these technology-based companies in Malaysia. These research outcomes provide an insight to investors or policy makers to develop future planning in order to avoid financial failure in local technology sector.

Highlights

The leverage of Information Communication Technology (ICT) is an enabler for the acceleration of economic growth, structural reform and labor productivity in developed and developing countries as well as emerging and newly industrializing economics in the globe [1,2,3,4,5,6,7,8,9,10,11]
It facilitates agile and fast access to new market worldwide for the products or services provided, achievement of economies of scale, enhancement on competitiveness and sustainable economic growth for countries pursuing open market economy [12,13,14,15]. In line with this effort, Malaysian government has initiated National E-Commerce Strategic Plan that is facilitated by local technology sector to speed up e-commerce growth rate from 10.8% in 2016 to 20.8% by 2020
Financial distress levels of the companies are determined through Z-score values

Summary

Introduction

The leverage of Information Communication Technology (ICT) is an enabler for the acceleration of economic growth, structural reform and labor productivity in developed and developing countries as well as emerging and newly industrializing economics in the globe [1,2,3,4,5,6,7,8,9,10,11]. It facilitates agile and fast access to new market worldwide for the products or services provided, achievement of economies of scale, enhancement on competitiveness and sustainable economic growth for countries pursuing open market economy [12,13,14,15]. In line with this effort, Malaysian government has initiated National E-Commerce Strategic Plan that is facilitated by local technology sector to speed up e-commerce growth rate from 10.8% in 2016 to 20.8% by 2020. It is vital to evaluate financial health of these technology-based companies so that steps can be taken to avoid them from encountering financial failure and bankruptcy

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Conclusion