Question

Please calculate the Altman Z-score for Boeing for 2018 and 2019. Show steps. Is it a good investment? Is Z-score an accurate measure of credit risk for the aerospace industry?

Answer 1

Boeing z score 2019:

Altman's zscore = 1.2A + 1.4B + 3.3C + 0.6D + 1E

A = Working Capital/ Total assets = Current assets - Current Liabilities / Total assets = (102229-97312)/133625 = 0.0368

B = Retained earnings/ Total assets= 50644/133625 = 0.379

C = Earnings before interest and tax/ Total assets = (Pretax income - Interest expense)/ Total assets = ( -2259 - 722)/133625 = - 0.0115

D = Market Value of equity/ Book value of total liabilities = 183300/141925 = 1.29

E = Revenue/Total assets = 76559/133625 = 0.5729

ZScore: 1.2*0.0368+1.4*0.379+3.3*-0.0115+0.6*1.29 +1*0.5729=1.95

Using above formulas, we calculate for 2018 ,

A=(87830-81590)/117359 = 0.05317

B=55941/117359 = 0.47666

C=((11604-(-475))/117359 = 0.102923

D=183100/116949=1.5656

E=101127/117359=0.86168

ZScore 2018 (adding up the above as per formula) = 2.87.

A z score below 1.8 indicates that the company is under financial distress and will go bankrupt in the he future. The score for Boeing has detoriated from 1.9 in 2019 to 1.4 in 2020. Boeing airlines is not a good investment as of now. Z score works for all industries as it gives us the picture about financial strength.