Question

What information might you use, besides its financial statements, when analyzing an organization's financial health? What is a company's "z-score," and what does it tell you? Be specific, and identify the usefulness of the information that you identify. Cite any references used. Participate in follow-up discussion by reviewing your classmates' posts, adding additional information, asking questions, or responding to follow-up questions posed by your instructor.

Answer 1

Apart f ok the financial statemtbst through which financial ratios are driven, I would look at the corporate governance policies to test whether the disclosed financial statements carry the credibility claimed.

Company's z-score or Altaman z-score is a measure of the company credit strength and indicates the likelihood of the company slipping into bankruptcy.

One can calculate the Altman Z-score 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

A score below 1.8 means it's likely the company is headed for bankruptcy, while companies with scores above 3 are not likely to go bankrupt. Investors can use Altman Z-scores to determine whether they should buy or sell a stock if they're concerned about the company's underlying financial strength. Investors may consider purchasing a stock if its Altman Z-Score value is closer to 3 and selling or shorting a stock if the value is closer to 1.8.