Evaluation of Financial Soundness of Companies Listed in Tehran Stock Exchange and Proposing an Appropriate Model for this Evaluation

The subject of this research is testing the validity of C.Zavgren in Iranian corporations and finally finding a model for estimating the probability of bankruptcy of this companies For doing this we used years 1998 to 2005 companies. Real meaning of fail or bankruptcy is cease of operation, but unfortunately because of governmental support the failed companies in Iran to follow their operations, we defined failed companies as per article 141 Business Act that express" the companies that the total accumulated loss (negative retained earning) is more than 50 percent of their capital share, is treated as bankrupted company", we used the same criteria for selecting bankrupted companies. Finally we found 30 bankrupted companies. For selecting successful companies we used two methods of sampling. In first method, we selected a miror for each failed company, in the way that for each failed company we found a successful one, in the same industry and year, we call this method of selection, sample1 hereinafter. The second method for selecting successful companies, we selected most successful companies so that the gap and discriminate between two groups of companies. For doing so, we selected companies with higher retained earning to share capital ratios. We call this way of selection, sample2 hereinafter. We used the Zavgren coefficients and calculated the probability of bankruptcy. This model for both method of our sampling predicted the probability of fail incorrectly. Actually the expected value of probability for both types of companies was more than .5 We tried to find a formula for prediction probability of bankruptcy using Logit analysis model