Which one of the following financial ratios has the highest weight in Altman's Z-score estimation?
A) Working capital/Total assets
B) Retained earnings/Total assets
C) EBIT/Total assets
D)Sales/Total assets

Question

Quizplus · Accepted Answer

Altman's Z-score estimation uses five financial ratios, namely working capital/total assets, retained earnings/total assets, EBIT/total assets, sales/total assets, and market value of equity/book value of liabilities. Among these, EBIT/total assets has the highest weight (0.3) in the Z-score calculation, while working capital/total assets and retained earnings/total assets have weights of 0.1 each, and sales/total assets and market value of equity/book value of liabilities have weights of 0.05 each. Therefore, option C, i.e., EBIT/total assets, is the best choice.

Which One of the Following Financial Ratios Has the Highest