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Chapter 12

2.2 Argenti’s A score – a key qualitative model

 Suggests there are three connected areas that indicate likely failure and that
failure follows a predictable pattern (this may take many years, possibly 5 or
more).

 Each area is divided into further headings and scores are given under each of
these headings.

1 Defects Divided into:

 Management weaknesses, e.g. autocratic chief
executive, lack of balance of skills in management
team

 Accounting deficiencies, e.g. no budgetary
control, no cash flow plans

A score of more than 10/45 is unsatisfactory

2 Mistakes The defects will result in mistakes, i.e:
made
 High gearing

 Overtrading

 Failure of a big project

A score of more than 15/45 is unsatisfactory

3 Symptoms of Visible symptoms of failure:
failure
Financial signs (appear towards the end of the failure
process)

Creative accounting, e.g. over-valued inventory

Non-financial signs, e.g. frozen management salaries,
delayed capital expenditure

Terminal signs (at the end of the failure process the
financial and non-financial signs become very obvious)

 Companies scoring more than 25 show many of the signs preceding failure and
are a cause for concern.

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