Measurement principles that apply to every ratio
- Keep numerator and denominator definitions consistent across every firm and year.
- Do not mix Group and Company financial-statement figures within a firm-year ratio.
- Consider average balance-sheet values instead of closing balances where theory and data permit.
- Investigate negative or near-zero denominators; they can make a ratio economically misleading.
- Do not treat “total debt” and “total liabilities” as automatically interchangeable.
- Document the statement, note, currency unit and transformation used for every extracted item.
- Write definitions precisely enough for another researcher to reproduce the dataset from the methodology chapter.
Prof. Enyi P. Enyi's operational break-even and relative solvency models
Developed by Prof. Enyi Patrick Enyi of Babcock University, this family of models offers a firm-based alternative to Altman-type discriminant scores. The foundation is operational break-even theory (Enyi, 2005): a firm reaches its operational break-even point at the stage of activity where cumulative contribution margin on recovered outputs equals the total cumulative production, marketing and administrative costs and losses of the learning period. The measures below derive from a firm's own financial statements using turnover, profit before tax and working-capital items.
Earning capacity: mark-up rate (m)
T is turnover or total operating income and P is profit before tax, so T − P is total operating cost inclusive of interest and depreciation. The mark-up rate measures the firm's ability to recover operating costs with a margin. A negative m indicates that the firm is eating into capital and may be prone to distress (Enyi, 2008).
Operational break-even point (OBEP)
OBEP expresses how many operating cycles the firm needs to recover its costs; a lower value indicates greater operational efficiency. Enyi, Nweze, Adebawojo and Olalere (2026) extend this into a break-even-based cash conversion cycle: CCC-B = OBEP × stock-up period, using an assumed 30-day stock-up period.
Working capital required at break-even (WCR)
WCR estimates the working capital a firm needs to sustain operations at its operational break-even point. The constant 104 embeds the model's cycle assumption of two times 52 weekly operating cycles.
Enyi's relative solvency ratio (RSR)
a is current assets and l is current liabilities, so a − l is available working capital. RSR measures working-capital availability relative to the firm's own operational needs and productive efficiency rather than an industry-average benchmark.
| RSR value | Interpretation under the model |
|---|---|
| Above 1.0 | Available working capital exceeds the operational requirement. |
| Below 1.0 | Working capital is inadequate for the firm's operational scale. |
| Negative (a < l) | The firm is technically insolvent by definition under the model. |
Source trail: cite Enyi (2005) for operational break-even theory, Enyi (2008) for the RSR model, and Enyi (2018; 2021) for later validation and restatement.
Going concern ratio (GCR) and corporate financial stability (CFS)
A is total assets, L is total liabilities excluding shareholders' funds, B is the book value of ordinary shares and n is par value per share. GCR values the unencumbered worth of the firm due to equity holders, while CFS combines it geometrically with earning capacity. Enyi (2018) interprets CFS values of 1.0 and above as strong going concern, 0.5 to below 1.0 as minor problems, 0 to below 0.5 as major instability, and below 0 as absence of going concern.
The Altman Z-score family
A. Original Altman Z-score
Suitable context: publicly listed manufacturing firms.
- WC
- Working capital.
- TA
- Total assets.
- RE
- Retained earnings.
- EBIT
- Earnings before interest and taxes.
- MVE
- Market value of equity.
- TL
- Book value of total liabilities.
- S
- Sales or revenue.
- Z > 2.99: Safe zone.
- 1.81 ≤ Z ≤ 2.99: Grey zone.
- Z < 1.81: Distress zone.
B. Revised Z′ score
Suitable context: primarily private manufacturing firms; book value of equity replaces market value.
BVE is the book value of equity. Other components retain the definitions above.
- Z′ > 2.90: Safe or non-bankruptcy zone.
- 1.23 ≤ Z′ ≤ 2.90: Grey zone.
- Z′ < 1.23: Distress or bankruptcy-risk zone.
C. Z″ score
Suitable context: non-manufacturing firms and applications where the sales-to-assets component is intentionally removed.
- Z″ > 2.60: Safe zone.
- 1.10 ≤ Z″ ≤ 2.60: Grey zone.
- Z″ < 1.10: Distress zone.
D. Emerging Market Score
Suitable context: credit-risk assessment using the Emerging Market Score calibration.
The constant 3.25 belongs to the Emerging Market Score calibration. It should not be added when a study intends to calculate the ordinary Z″ distress score.
Altman model comparison
| Model | Target population or use | Variables retained | Cut-offs |
|---|---|---|---|
| Original Z | Publicly listed manufacturers | WC/TA, RE/TA, EBIT/TA, MVE/TL, S/TA | Safe > 2.99; grey 1.81–2.99; distress < 1.81 |
| Z′ | Private manufacturers | WC/TA, RE/TA, EBIT/TA, BVE/TL, S/TA | Safe > 2.90; grey 1.23–2.90; distress < 1.23 |
| Z″ | Non-manufacturers; sales term removed | WC/TA, RE/TA, EBIT/TA, BVE/TL | Safe > 2.60; grey 1.10–2.60; distress < 1.10 |
| EMS | Emerging-market credit-rating calibration | Z″ variables plus constant 3.25 | Use the selected EMS credit-rating framework; do not import ordinary Z″ zones automatically |
Common financial variables
Return on assets
Leverage
Simplified Tobin’s Q proxy
Return on equity
Extraction and reproducibility controls
Correct control
Record entity level, year, statement, note, line item, unit, currency, restatement status, transformation and reviewer check.
Common error
Copy a figure into the dataset without preserving where it came from or why it satisfies the variable definition.
- Create a variable dictionary before extraction begins.
- Lock the numerator and denominator definitions before collecting the full panel.
- Use one entity level within each ratio and document any justified exception.
- Flag missing, negative, restated and unusually large values for review rather than silently replacing them.
- Preserve source-page references or traceable links to each annual report.
- Run independent spot checks and reconcile calculated ratios to published comparatives where possible.
Core supporting references
Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589–609. https://doi.org/10.1111/j.1540-6261.1968.tb00843.x
Enyi, E. P. (2005). Applying relative solvency to working capital management – the break-even approach. SSRN. https://ssrn.com/abstract=744364
Enyi, E. P. (2008). A comparative analysis of the effectiveness of three solvency management models. SSRN. https://ssrn.com/abstract=1138357
Enyi, E. P. (2018). Going concern, earning capacity and corporate financial stability. International Journal of Development and Sustainability, 7(1), 179–207.
Enyi, E. (2021). Corporate survival monitoring mechanism and discriminant analysis using operational breakeven point and relative solvency ratio. Academia Letters, Article 2, 1–10.
Enyi, E. P., Nweze, E. O., Adebawojo, O., & Olalere, M. D. (2026). Working capital management and cash conversion cycle – thinking outside the box with new insights. Economics and Business Quarterly Reviews, 9(1), 90–99. https://doi.org/10.31014/aior.1992.09.01.707
Later model variants and calibrations should be cited to the exact source used by the study. A DOI should be included only after it has been independently verified.