Analyzing the Sensitivity of the Bankruptcy Index to Financial Indicators in Different Stages of the Firm Life Cycle

In this paper, analysis of the sensitivity of the bankruptcy index to financial variables during the firm life cycle was investigated using Monte Carlo simulation. To measure bankruptcy risk, Altman's modified bankruptcy model was used. To simulate score ​​of Altman's modified model, the probability distribution of each index of Altman's modified model was determined based on the historical data of the listed firms listed in the Tehran Stock Exchange (TSE) during the years 2011-2021. With the help of these distributions, 10,000 items for the bankruptcy index were simulated in each life cycle. The results of simulations showed that the bankruptcy index had high and low sensitivities to the indicators of working capital to total assets (X1) and accumulated earnings to total assets (X2) compared to the indices of earnings before interest and taxes to total assets (X3), the book value of equity to book value of total liabilities (X4), and sales to total assets (X5) in all stages of the firm life cycle, except for the decline stage.