Research On The Financial Early-warning Of Chinese Listed Transportation Company Based On The "Z-Score" Model

Financial early-warning is a method to monitor and alarm the potential financial crisis. A proper financial early-warning have some definite advantages. Firstly, it can remind the manager timely of taking appropriate measures at the beginning of the financial difficulty. Secondly, it is very vital in credit rating for banks, securities companies and other financial institutions. Finally, it is an important basis to investors for decision-making.The first task of this paper is to define the financial distress. The author thinks that financial distress is dynamic. If some phenomenon takes place, such as circulation of funds becoming slow and solvency obstacles, it is the beginning of the financial distress. Some effective measures must be taken at once to avoid the situation of getting worse. Bankruptcy is the most serious financial distress. As it must be helpful that financial early-warning should give a caution when there is an early sign financial distress, the author chooses solvency obstacles for two consecutive years (net operating cash flow / current liabilities is less than 0.2116), as a sign of financial distress.The author directly applied the classic "Z-Score" model to the Chinese listed transport enterprise, and the results shows that Z values generally on the high side. The results are various, including conditions, industry characteristics and the definition of financial distress. On the basis of the listed trandportation enterprise' latest financial data (2001-2006), the author creates a set of index system. And then, a financial early-warning model is established, which is suitable to the Chinese market. Log of assets, the rate of assets and liabilities, and the rate of return on total assets are the three variables in the model. Among them, the first one stands for the size of the business; the second is an important indicator of solvency; and the rate of return on total assets is a composite indicator, reflecting the company's operating capacity. The model is effective to give an alarm in transportation enterprises overall. Its average forecast accuracy rate is 88.61 percent. However, due to the limitations of data and methods, the model also has shortcomings, such as neglecting the difference between the sub-sectors in the transport sector, and neglecting the difference cost between the error type I and typeⅡ.