Suppose that the financial ratios of a potential borrowing firm take the following values: X₁ = Net working capital/Total assets = 0.30, X₂= Retained earnings/Total assets = 0.40. X3 = Earnings before interest and taxes/Total assets = 0.42, X4 = Market value of equity/Book value of long-term debt = 0.80, X5 = Sales/Total assets ratio = 0.99. Calculate the Altman's Z-score for this firm. (Round your answer to 2 decimal places.) Altman's Z-score 2.65 ✪ This firm falls in which category of bankruptcy risk based on its Z-score? High risk of bankruptcy Indeterminate risk of bankruptcy Ⓒ Low risk of bankruptcy
Suppose that the financial ratios of a potential borrowing firm take the following values: X₁ = Net working capital/Total assets = 0.30, X₂= Retained earnings/Total assets = 0.40. X3 = Earnings before interest and taxes/Total assets = 0.42, X4 = Market value of equity/Book value of long-term debt = 0.80, X5 = Sales/Total assets ratio = 0.99. Calculate the Altman's Z-score for this firm. (Round your answer to 2 decimal places.) Altman's Z-score 2.65 ✪ This firm falls in which category of bankruptcy risk based on its Z-score? High risk of bankruptcy Indeterminate risk of bankruptcy Ⓒ Low risk of bankruptcy
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:Suppose that the financial ratios of a potential borrowing firm take the following values:
X₁ = Net working capital/Total assets = 0.30, X₂= Retained earnings/Total assets = 0.40.
X3 = Earnings before interest and taxes/Total assets = 0.42, X4 = Market value of
equity/Book value of long-term debt = 0.80, X5 = Sales/Total assets ratio = 0.99.
Calculate the Altman's Z-score for this firm. (Round your answer to 2 decimal places.)
Altman's Z-score
2.65 ✪
This firm falls in which category of bankruptcy risk based on its Z-score?
High risk of bankruptcy
Indeterminate risk of bankruptcy
Low risk of bankruptcy
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