Question

Problem 30-3 Z-Score Fair-to-Midland Manufacturing, Inc., (FMM) has applied for a loan at True Credit Bank. Jon Fulkerson, the credit analyst at the bank, has gathered the following information from the company’s financial statements: Total assets $115,000 EBIT 8,900 Net working capital 5,400 Book value of equity 39,000 Accumulated retained earnings 18,800 Sales 112,000 The stock price of FMM is $41 per share and there are 7,000 shares outstanding. What is the Z-score for this company? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

Answer 1

The Altman Z-score is calculated as follows:
Z Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where:
A = working capital / total assets
B = retained earnings / total assets
C = earnings before interest and tax / total assets
D = market value of equity / total liabilities
E = sales / total assets
Total Assets	115,000
EBIT	8,900
Net Working capital	5,400
Book value of equity	39,000
Accumulated retained earnings	18,800
Sales	112,000
Market price per share	41
Total no of shares	7,000
Market value of equity	=7000*41
	287,000
Total liability	=Total asset - accumulated earnings - book value of equity
	=115000-18800-39000
	57,200.00
Now let's calculate the factors
A = working capital / total assets	=5400/115000	0.046957
B = retained earnings / total assets	=18800/115000	0.163478
C = earnings before interest and tax / total assets	=8900/115000	0.077391
D = market value of equity / total liabilities	=287000/57200	5.017483
E = sales / total assets	=112000/115000	0.973913
Z Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Z Score =	1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Z Score =	=1.2*0.04696 + 1.4*0.16348 + 3.3*0.07739 + 0.6*5.01748 + 1.0*0.97391
Z Score =	4.525