Altman Z-score The Z-score formula for predicting bankruptcy was published in 1968 by Edward I. Alt

Altman Z-score The Z-score formula for predicting bankruptcy was published in 1968 by Edward I. Altman, who was, at the time, an Assistant Professor of Finance at New York University. The formula may be used to predict the probability that a firm will go into bankruptcy within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. The original Z-score formula was as follows: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5. X1 = working capital / total assets. Measures liquid assets in relation to the size of the company. X2 = retained earnings / total assets. Measures profitability that reflects the company's age and earning power. X3 = earnings before interest and taxes / total assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability. X4 = market value of equity / book value of total liabilities. Adds market dimension that can show up security price fluctuation as a possible red flag. X5 = sales / total assets. Standard measure for total asset turnover (varies greatly from industry to industry). Altman found that the ratio profile for the bankrupt group fell at −0.25 avg, and for the non-bankrupt group at +4.48 avg.

 

How to calculate x1,x2,x3,x4,x5 value from balance sheet. Please explain with example

 

Sir I got 47 in bfm second attempt before abm 53 and retail 52 have I cleared

 

If that's what I know before I would have easily got cleared

 

Same case study was asked in the exam,but I could not attempt as I did not know how to solve this type of questions,but still happy as I have passed the exam with 50 marks

 

Got 48 in Bfm and it was my 4th attempt. Feeling very sad