Factors Affecting Financial Distress of Thrift and Savings Cooperatives and Credit Union Cooperative in Cooperative Area 7

Abstract

The purposes of this paper are to evaluate the accuracy of Altman's (1983)
Z-score model and to analyze factors affecting the financial distress of savings cooperatives and credit unions. This paper tests financial ratios according to Altman's (1983) Z-score model, including the ratio of working capital to total assets, the ratio of retained earnings to total assets, the ratio of earnings before interest and tax to total assets, and the ratio of the market value of equity to total liabilities. Data from the financial statement of 705 samples taken during 2019-2022 is collected. Descriptive statistics and independent t-test are utilized to analyze the differences in four financial ratios. The findings show that the Altman's Z-score model can predict cooperatives experiencing financial distress, with an average accuracy of prediction of 53.99 percent. It is also found that ratios that could indicate financial distress include the ratio of working capital to total assets ratio, the ratio of retained earnings to total assets, the ratio of earnings before interest and tax to total assets, and the ratio of the market value of equity to total liabilities. The results of this paper suggest that relevant agencies should evaluate and control the above financial ratios within the appropriate limits according to the standards of the cooperative auditing department to prevent any impact on all stakeholders.