Question

Compute and Interpret Altman's Z-scores Following is selected financial information for Netflix, for 2018 and 2017. $ thousands, except per share data 2018 2017 Current assets $9,694,135 $7,669,974 Current liabilities 6,487,320 5,466,312 Total assets 25,974,400 19,012,742 Total liabilities 20,735,635 15,430,786 Shares outstanding 436,598,597 433,392,686 Retained earnings 2,942,359 1,731,117 Stock price per share 267.66 191.96 Sales 15,794,341 11,692,713 Earnings before interest and taxes 1,605,226 838,679 Compute and interpret Altman Z-scores for the company for both years. (Do not round until your final answer; then round your answers to two decimal places.) 2018 z-score = Answer 2017 z-score = Answer Which of the following best describes the company's likelihood to go bankrupt given the z-score in 2017 compared to 2018. The z-score in 2018 increased. Z-scores for both years are in the gray area indicating some risk of bankruptcy. The z-score in 2018 increased, which suggests the company's risk of bankruptcy has increased. The z-score in 2018 increased. Z-scores for both years indicate low bankruptcy potential in the short term. The z-score in 2018 decreased, which suggests the company's risk of bankruptcy has decreased.

Answer 1

Altman Z score of an organization is determined utilizing the accompanying equation

Z score = (1.2 * A)+(1.4 * B)+(8.3*C)+(0.6*D)+(1.0*E)

Where

A=Working Capital/All out Assests

B=Retained Acquiring/All out Resources

C=Earning before Premium and expense/All out Resources

D=Market estimation of value/All out Liabilities

E=Sales/All out Resources

For Year 2018

Z score is determined as follows

Z score=(1.2*0.12)+(1.4*0.11)+(3.3*0.6)+(0.6*5.63)+(1.0*0.60)=6.256

Where

A=Working Capital/Complete Resources

=3206815/25974400=0.12

Working capital=Current Resources Current Liabilities

=9694135-6487320=3206815

B=Retained Gaining/Absolute Resources

=2942359/25974400=0.11

C=Earning before Premium and assessment/Absolute Resources

=1605226/25974400=0.06

D=Market estimation of value/Complete Liabilities

=(Share Outstanding*Stock cost per share)/Complete Liabilities

=(436598597*267.66)/20735635

=5635.70

=5.63(in thousands $)

E=Sales/Complete Resources

=15794341/25974400

=0.60

For year 2017

Z Score=(1.2*0.11)+(1.4*0.09)+(3.3*0.04)+(0.6*5.39)+(1.0*0.61)

=4.23

A=Working Capital/Complete Resources

=2203662/19012742

=0.11

Working capital=Current Resources Current Liabilities

=7669974-5466312

=2203662

B=Retained Gaining/Absolute Resources

=1731117/19012742

=0.09

C=Earning before Premium and assessment/Absolute Resources

=838679/19012742

=0.04

D=Market estimation of value/All out Liabilities

=(191.96*433392686)/15430786

=5391.43

=5.39(in thousand $)

E=Sales/All out Resources

=11692713/19012742

=0.61

2018 Z Score =6.25

Understanding - Since the Z Score>=3.0 dependent on the budgetary information so the association is no doubt safe.

2017 Z Score =4.23

Understanding - Since the Z Score>=3.0 dependent on the budgetary information so the association is no doubt safe.

The Z-score in 2018 expanded. Z-scores for the two years show low liquidation potential for the time being.

On contrasting organizations Z score in 2018 and its Z score in 2017 after alternative best depicts tge organization probability to fail

The Z Score in 2018 expanded. Z score for both year show low chapter 11 potential in present moment.