Question

PARAMETERS Income statement Net sales Operating income Balance sheet Current assets Total assets Current lia bilities Total liabilities Retained earnings Public companies Market value of equity Private companies Book value of equity CALCUATIONS 141,576 4,480 20,289 40,830 19,926 27,727 7,887 102,155 N/A Z1 Z2 Factor Public Private General Use Working capital/Total assets Retained earning/Total assets EBIT/Total assets Market value of equity/Total liabilities X1 0.0089 1.2 6.56 0.1932 1.4 3.3 X2 0.847 3.107 3.26 X3 0.1097 6.72 X4 3.6843 0.6 Book value of equity/Total liabilities Net sales/Total assets X4A #VALUE ! 0.42 1.05 X5 3.4675 1 0.998 Z-Score 6.32 #VALUE! #VALUE! LEGEND Financially sound if greater than 2.9 2.99 2.77 2.6 Caution required if between Likely to go bankrupt within 2 years if between Likelihood of bankruptcy is high if below Average for nonbankrupt companies Average for bankrupt companies 2.99 1.8 2.7 1.88 5.02 0.29 1.23 4.14 0.15 1.1 7.7 4.06

What does Z-Score tell you and what can you interpret from the table?

Answer 1

The higher the Z score the lower is the chance of the company defaulting and as the Zscore is high, this company is financially sound