Calculate the Z-score of the firm that has the following ratios: Working capital/total assets = 0.34

Calculate the Z-score of the firm that has the following ratios:

Working capital/total assets = 0.34

Retained earnings/total assets = 0.15

EBIT/total assets = 0.00

Market value equity/book value of long-term debt = 0.80

Sales/total assets = 1.6

Round your answer to 2 decimal places.

For example, if your answer is 5.689, write down 5.69

Solutions

Expert Solution

ALTMAN Z SCORE

X1 = Working Capital (Current Assets - Current Liabilities) / Total Assets (liquidity of firm)

X2= Retained Earnings/Total Assets (measures accumulated profits relative to assets)

X3= Earnings Before Interest & Taxes (EBIT) / Total Assets (measures amount of profit from the assets)

X4 = Market Value of Equity (Mkt. Cap. + Preferred Stock) / Total Liabilities (compares the company's value versus to its debt)

X5= Sales / Total Assets (this is an efficiency ratio that measures how much the company's assets are producing for a unit of sales).

1.2(X1) +1.4(X2) + 3.3(X3) + 0.6(X4) + 1.0 *(X5)

Z score is 2.70.

Junaid answered 1 year ago

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