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Argenti Model as a Key to Understanding Causes of Managerial Crisis

Argenti Model (also referred as A-score) is a tool for understanding the causes of managerial crisis at the company, which in its turn may lead to the firm’s bankruptcy.

Definition of the company’s bankruptcy expectancy starts with the following suggestions:

  • The process leading the company to bankruptcy has already begun;
  • The completion of this process takes several years;
  • The process can be split into 3 stages: defects, mistakes and symptoms.

Stages of the company's bankruptcy

Defects. Companies approaching bankruptcy mostly have some common defects in their performance, which are obvious well ahead of the actual failure.

Mistakes. As a result of these mistakes accumulation, the company can make a fatal mistake, which would lead to bankruptcy.

Symptoms. Mistakes made by the company’s management reveal some known symptoms of the upcoming insolvency: deterioration of indicators, lack of cash. Usually, these symptoms appear during last two or three years of the process that leads to insolvency, which, in its turn, lasts from five to ten years.

During the testing all of the indicators in the table should be assigned “yes” or “no” values. Every factor of each stage gets some points; after that an aggregated A-score indicator is being computed. Transitional values not acceptable; the analyst should either accept or reject each of the statements.

A-score bankruptcy risk computation template can be downloaded here.