Question

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	$111,000
EBIT	8,700
Net working capital	5,200
Book value of equity	37,000
Accumulated retained earnings	18,600
Sales	110,000

   

The stock price of FMM is $39 per share and there are 6,800 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.)

  

Z-score

Answer 1

Altman Z score

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 & Tax / Total Assets
D = Market Value of Equity / Total Liabilities
E = Sales / Total Assets

Value of A = Working Capital/ Total Assets = $5200 / $79,000 = 0.066

Value of B = Retained Earnings / Total Assets = 18600 / 79000 = 0.24

Value of C = Earnings before Interest & Tax / Total Assets = 8700 / 79000 = 0.11

Market Value of equity = $39 × 6800 = $265200

Value of total liability = Total assets – Book value of equity = 79000 - 37000 = 42000

Value of D = Market Value of Equity / Total Liabilities = $265200 / $42000 = 6.31

Value of E = Sales / Total Assets = 110000 / 79000 = 1.39

Now Z score is calculated below by putting value in above formula:

Z-Score = (1.2 × 0.066) + (1.4 × 0.24) + (3.3 × 0.11) + (0.6 × 6.31) + (1.0 × 1.39)

Value of Z score is 5.954