Question

2-score prodel The following are the summarized financial statements of ABC Ltd., which is facing financial difficulties Public listed Co Income statement for the year ended 31 December 2018: Sh."000", Tumover 1.209,000 Earings before interest and tax (EBIT) 84.000 Interest (39,000 Profit before tax 45,000 Less Tax (15,000) Profit after tax(PAT) 30,000 Dividends (33.000) Retained earnings (3.000) Statement of financial position as at 31 December 2018: Sh."000" Sh."000" Assets Non-current assets (Net Book Value) Land and buildings 411,000 Plant and machinery 384,000 Others 96,000 891,000 Current assets Inventory 303,000 Trade Receivables 63,000 Bank balance 9,000 375,000 Total assets 1.266,000 Equity and liabilities Ordinary share capital (Sh.25 147,000 each) Retained earnings 222,000 369,000 Current liabilities Trade payables 381.000 Taxation 15,000 Dividends 24.000 Long-term liabilities Bank loan • 183000 10% debentures 294,000 Total equity and liabilities 1,266,000 • 420,000

using z-score model to predict corporate failure measures for a public listed company?

Answer 1

X1 = (375000-420000)/1266000 =	-0.04
X2 = 222000/1266000 =	0.18
X3 = 84000/1266000 =	0.07
X4 = (30*147000/25)/(420000+183000+294000) =	0.20
X5 = 1209000/1266000 =	0.95
Z Score = 1.2*-0.04+1.4*0.18+3.3*0.07+0.6*0.20+1*0.95 =	1.51
Altman's Z score grading:
Below 1.8 -- headed for bankruptcy
1.8 to 3.0 -- can go either way in future
Above 3.0 -- unlikely to become bankrupt
From the company's Z score it is heading for bankruptcy.