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FINANCIAL PERFORMANCE ANALYSIS OF MSMES USING RATIO ANALYSIS AND ALTMAN Z-SCORE MODEL

AUTHORS:
Neha P. Chatterjee
Vikram R. Malhotra
Mentor
Dr. Kunal A. Bansal
Affiliation
Department of Finance & Accounting,
Zenith School of Business, India
DOI: 10.55041/ijsmt.v1i2.002
CC BY 4.0 License:
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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Abstract
Micro, Small, and Medium Enterprises (MSMEs) are vital contributors to economic growth, employment generation, and innovation globally. However, these enterprises frequently grapple with financial fragility, limited resources, and market volatility, necessitating robust financial performance evaluation tools. This study investigates the financial performance of MSMEs using traditional ratio analysis and the Altman Z-Score model. Employing secondary financial data from a purposive sample of MSMEs over a five-year period (2018–2022), we compute liquidity, profitability, solvency, and efficiency ratios and apply the Z-Score model to assess bankruptcy risk. The results highlight the strengths and weaknesses of MSME financial health, revealing patterns in financial sustainability and suggesting strategies for improved performance. Findings demonstrate that while many MSMEs maintain reasonable liquidity, profitability and solvency remain areas of concern. The Altman Z-Score further identifies a significant proportion of firms at risk of financial distress. The research provides valuable insights for managers, investors, and policymakers to strengthen MSME performance and reduce failure risk
Keywords
Micro Small and Medium Enterprises (MSMEs) Financial Performance Ratio Analysis Altman Z-Score Model Liquidity Ratios Solvency Ratios Profitability Ratios Financial Distress
Article Information
PUBLICATION DETAILS
Review Type:
0
License:
CC BY-NC 4.0
Volume/Issue:
Volume Volume 01, Issue 02
Review Rounds:
2
Article Type:
Research Article
Publication Date:
Nov 20 2025
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Chatterjee, N. P. & Malhotra, V. R. (2025). Financial Performance Analysis of MSMEs Using Ratio Analysis and Altman Z-Score Model. International Journal of Science, Strategic Management and Technology, Volume 01(02), 1-9. https://doi.org/10.55041/ijsmt.v1i2.002

Chatterjee, Neha, and Vikram Malhotra. "Financial Performance Analysis of MSMEs Using Ratio Analysis and Altman Z-Score Model." International Journal of Science, Strategic Management and Technology, vol. Volume 01, no. 02, 2025, pp. 1-9. doi:https://doi.org/10.55041/ijsmt.v1i2.002.

Chatterjee, Neha, and Vikram Malhotra. "Financial Performance Analysis of MSMEs Using Ratio Analysis and Altman Z-Score Model." International Journal of Science, Strategic Management and Technology Volume 01, no. 02 (2025): 1-9. https://doi.org/https://doi.org/10.55041/ijsmt.v1i2.002.

References

Altman, E. I. (1968). “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy.” Journal of Finance.
Altman, E. I., Iwanicz-Drozdowska, M., Laitinen, E. K., & Suvas, A. (2017). “Financial Distress Prediction in an International Context: A Review and Empirical Analysis of Altman’s Z-Score Model.” Journal of International Financial Management & Accounting.
Beck, T., & Cull, R. (2014). “SME Finance in Africa.” Journal of African Economies.
Beck, T., Demirgüç-Kunt, A., & Martínez Pería, M. S. (2008). “Finance and Poverty: Evidence from Africa and Latin America.” Journal of Financial Intermediation.
Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management.
Duréndez, A., Moya, I., & Requejo, I. (2011). “Altman’s Z-Score Model in Spanish SMEs.” Journal of Small Business Management.
Gitman, L. J., & Zutter, C. J. (2015). Principles of Managerial Finance.
Olawale, F., & Garwe, D. (2010). “Obstacles to the Growth of New SMEs in South Africa.” Journal of Business Venturing.


Agrawal, D. V. (2025). Financial Fragility and Sectoral Risk in MSMEs: A Longitudinal Validation of The Altman Z-Score Model in India. International Journal of Accounting and Economics Studies, 12(6), 898–908. https://doi.org/10.14419/zzvvh125


Subagyo, A. (2017). Financial Ratio Relationship in Altman Z Score Model. International Journal of Scientific Research in Science and Technology, 3(6), 272–274. https://doi.org/10.32628/ijsrst173670


Setiawan, F. (2021). Financial Distress Analysis Using Altman Z-Score Model In Sharia Banking In Indonesia. IQTISHODUNA: Jurnal Ekonomi Islam, 10(2). https://doi.org/10.36835/iqtishoduna.v10i2.938


Ika, S. R., Nursiningsih, F., Sarnowo, H., & Sahadi, S. (2020). Financial Performance of Retail Industry Before and After E-Commerce Booming in Indonesia: A Study of Altman Z-Score Model. 169. https://doi.org/10.2991/aebmr.k.210311.014


Kamila, A. F., Faruq, U., & Subairi, S. (2025). Financial Distress Analysis Using the Altman Z-Score Model on Textile Companies in Indonesia Stock Exchange. InFestasi, 21(1), 45–56. https://doi.org/10.21107/infestasi.v21i1.29827

Ethics and Compliance
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This article has undergone plagiarism screening and double-blind peer review. Editorial policies have been followed. Authors retain copyright under CC BY-NC 4.0 license. The research complies with ethical standards and institutional guidelines.
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