Calculation of Altman's Z-Score: Suppose that the financial ratios of a potential borrowing firm took the following values: X₁ = Net working capital/Total assets = .30, X₂ = Retained earnings/Total assets = .40, X₃ = Earnings before interest and taxes/Total assets = .43, X₄ = Market value of equity/Book value of long-term debt = .65, X₅ = Sales/Total assets ratio = 0.95. Calculate the Altman's Z-score for this firm.

Question

Quizplus · Accepted Answer

Altman's Z-Score formula for non-manufacturing firms is: Z = 1.2X₁ + 1.4X₂ + 3.3X₃ + 0.6X₄ + 1.0X₅ Plugging in the given values: Z= 1.2(0.30) + 1.4(0.40) + 3.3(0.43) + 0.6(0.65) + 1.0(0.95) = 3.679 Therefore, the correct answer is (A) 3.679.

Calculation of Altman's Z-Score: Suppose That the Financial Ratios of a Potential