[Qualitative models] Argenti's A score

A-score

This is qualitative approach that is used to analyze whether a company is at risk of corporate failure. This is divided into Defect, Mistakes, and Symptoms of failure.

 

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Defects (early warning stage)

It includes management weaknesses. A mark of 10 or more out of a possible 45 is considered unsatisfactory

 

• Autocractic CEO
• Passive/ineffective board members
• Inexperienced CEO or directors 
• Failure to separate role of chairman and CEO
• Lack of budgetary control
• Poor ability to respond to busienss environemntal changes

 

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Mistakes

This will occur over time as a result of the defects above. A socre of more than 15 out of a possible 45 is considered unsatisfactory

 

• Expanding the business too quickly without careful planning and resources 
• Excessive borrowing from banks, high gearing
• Undue dependence on a single (big) project, failure to diversify risks

 

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Symptoms of failure

Mistakes will eventually lead to visible symptons of failure 

 

• Creative accounting
• High staff turnover
• deteriorating ratios, cash balances 
• low morale of staff, freezing salaries

 

 

Conclusion

If the overall score is more than 25 the company has many of the signs preceding failure and is therefore a cause of concern