Arcket,Inc.is a publicly traded nonmanufacturing company.The following information is available from its financial statements: $$\begin{array} { l r }
\text { Net working capital } & \$ 200,000 \
\text { Retained earnings } & \$ 125,000 \
\text { Eamings before Interest and taxes } & \$ 375,000 \
\text { Market value of equity } & \$ 1,015,000 \
\text { Book value of total debt } & \$ 1,750,000 \
\text { Total assets } & \$ 2,500,000 \
\text { Sales } & \$ 1,500,000
\end{array}$$ Calculate and interpret the Altman's Z-score for Arcket,Inc.

Question

Arcket,Inc.is a publicly traded nonmanufacturing company.The following information is available from its financial statements: $$\begin{array} { l r } 
\text { Net working capital } & \$ 200,000 \
\text { Retained earnings } & \$ 125,000 \
\text { Eamings before Interest and taxes } & \$ 375,000 \
\text { Market value of equity } & \$ 1,015,000 \
\text { Book value of total debt } & \$ 1,750,000 \
\text { Total assets } & \$ 2,500,000 \
\text { Sales } & \$ 1,500,000
\end{array}$$ Calculate and interpret the Altman's Z-score for Arcket,Inc.

Quizplus · Accepted Answer

The Altman's Z-score formula for non-manufacturing firms is: Z = 6.56*(Working Capital/Total Assets) + 3.26*(Retained Earnings/Total Assets) + 6.72*(EBIT/Total Assets) + 1.05*(Market Value of Equity/Book Value of Total Debt). Substituting the given values, Z = 6.56*(200,000/2,500,000) + 3.26*(125,000/2,500,000) + 6.72*(375,000/2,500,000) + 1.05*(1,015,000/1,750,000) = 2.312, which falls in the zone of ignorance.

Arcket,Inc Calculate and Interpret the Altman's Z-Score for Arcket,Inc