The objective of the study was the use of the book value of equity/total liabilities ratio as one of the Altman’s z score ratio model in predicting the likelihood of bankruptcy of sugar companies in Kenya. The study was triggered by financial difficulties facing sugar companies in Kenya. Miwani and Muhoroni sugar companies are under receivership, Chemelil Sugar Company is struggling with immature cane supplies and Mumias Sugar Company is struggling to pay it’s debts. The study adopted descriptive research design because it seeks to determine and report the way things are. The target population consists of all the 12 sugar companies in Kenya as per Sugar Directorate (2016) reports. Purposive sampling was used where all the 6 public owned sugar companies in western Kenya and South Nyanza were selected and the 4 private owned sugar companies whose secondary data was available. Data was collected with the aid of data collection sheet from the company’s published financial statements which included statement of financial position and income statements for the years 2007 to 2016 for public owned sugar companies and from 2011 to 2015 for private owned sugar companies. Data was analyzed using the statistical package of social sciences (SPSS) where discriminant analysis was used. The findings were presented in form of tables and figures. The study was enriched by pecking order theory and the static trade off theory (STT).The study established that the book value of equity/total liabilities ratio had a significant discriminating power skewed towards likelihood of bankruptcy low in predicting likelihood of bankruptcy of sugar companies in Kenya. The study concluded that all the 6 public owned sugar companies in Kenya should reduce their debts and increase their equity since they are heavily externally financed, hence increased their likelihood of bankruptcy.
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