Abdul Rahim Suriya FCA FCMA

Argenti’s ‘A’ Score

A corporate failure may be defined as a situation when a company goes bankrupt and is thus forced to
quit its business activities. Of course it is quiet obvious that any corporate concern goes out of business
only if it fails on some fundamental parameters. Thus, corporate failure analysis constitutes and
integral part of the contemporary business scenario.

Hence the aim of any pragmatic corporate failure analysis is to identify the tell tale symptoms that are
discernibly indicative of the fact that a company is heading towards annihilation. Such an analysis
enables the management, administration, financial institutions and creditors to strive for and press on
the need for introducing the apt countermeasures in advance so as to avert any possibility of a pending
corporate failure.

Till date, the concept of corporate failure analysis is predominated by two diverse approaches, one of
which is purely quantitative whereas the other is thoroughly qualitative in its scope. If one holds that
most of the corporate failures can be attributed to financial lapses, then it is certainly possible to avert
any corporate failure by resorting to a timely and apt financial analysis. On the contrary there exists
one other approach that believes that most of the corporate failures are caused by non-financial lapses
and irregularities and financial irregularities in any company are a mere side effect of the discrepancies
existing in the qualitative aspects of business. In the light of the given discussion, Altman’s ‘Z’ Score
model is a noteworthy quantitative approach towards corporate failure analysis, whereas Argenti’s ‘A’
Score model definitely stands to be its consummate qualitative counterpart.

Argenti’s ‘A’ Score Model : is a purely qualitative approach towards corporate failure analysis. Thus it
has a minimal reliance on the information contained in the published financial statements. Like Z score,
this model furnishes a score called the A score that can be used to profess or predict the possibilities of
insolvency in small and medium sized companies. The greater the A score of a company, the more is it
liable to fail. An A score of 0 is considered to be an ideal situation. A company having an A score of 25 is
the one most liable to fail. An A score of 18-25 is regarded as being in the grey zone. Argenti’s ‘A’ score
model also assigns specific weighting to certain qualitative entities, which are grouped under three
headings:

 Defects – These traits include the defects and discrepancies that are rampant within an organization
and its administrative structure an overbearing CEO, unrealistic budgetary allocations, poor
organizational communication, etc.

 Mistakes – This includes the avoidable factors that can jeopardize the sustainability of a company
over borrowing, embarking on non-feasible ventures, etc.

 Symptoms - These factors are conclusively indicative of the fact that a gross deterioration has set
within a company unaccounted for losses, demoralized staff, etc.

The advantage of Argenti’s ‘A’ score model:

 Covers a wide range of financial and non-financial indicators.

 Gives the management an insight into the possible causes underlying the company failure.
 Sensitive towards the concerns of customers, stock holders and employees.