Abstract:
Financial distress remains a critical threat to business continuity across firms globally, regardless of
size or industry. It refers to a condition where a firm experiences difficulty in meeting its financial
obligations fully and on time. This study investigated the determinants of financial distress among star
rated hotels in Gondar City, employing the Altman Z-Score model as a proxy for measuring financial
distress. The study utilized a quantitative research approach and used both descriptive and explanatory
research design. The researcher applied census technique and used secondary panel data collected from
the target population of 10 star rated hotels over an eight-year period (2016–2023 G.C.). Key
explanatory variables in this study were liquidity, leverage, profitability, efficiency, inflation, capital
adequacy, and firm size. Data were analyzed using Random Effects Generalized Least Squares (GLS)
regression with STATA software 14 version. The descriptive analysis showed that most hotels operated
within the grey zone of financial distress, indicating moderate financial health. The regression results
indicated that liquidity, profitability, capital adequacy, had a statistically significant positive effect on
the financial health of hotels. The study recommends that hotel managers should focus on sound
liquidity management, profitability strategies, adequate capitalization, and efficient management which
are critical to minimizing financial distress in the hotel sector.
