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 = 0.35,X₂ = Retained earnings/Total assets = 0.50,X₃ = Earnings before interest and taxes/Total assets = 0.60,X₄ = Market value of equity/Book value of long-term debt = 1.50,X₅ = Sales/Total assets ratio = 3.65.Calculate the Altman's Z-score for this firm.

Question

Quizplus · Accepted Answer

The Altman's Z-Score is calculated using the formula: Z = 1.2X₁ + 1.4X₂ + 3.3X₃ + 0.6X₄ + 1.0X₅. Substituting the given values: Z = 1.2(0.35) + 1.4(0.50) + 3.3(0.60) + 0.6(1.50) + 1.0(3.65) = 7.65.

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