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Quantitative models such as the Z score
Strengths
Use publicly available financial data to predict whether a firm is likely to fail.
Calculation is easy to make using the model
Weaknesses
The calculation is only a probability not an absolute likelihood so it may need to be used with other data to make a more rounded assessment.
The model is based on historical trading patterns of a specific group of companies so a change in trading pattern or a company that falls outside the industry grouping used may find the model inaccurate.
Companies in trouble may use creative accounting in calculating figures which means where these go into calculations they are unreliable.
