Financial ratios of potential borrowing firm

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Reference no: EM131543381

Suppose that the financial ratios of a potential borrowing firm take the following values: X1 = Net working capital/Total assets = 0.16, X2 = Retained earnings/Total assets = 0.23, X3 = Earnings before interest and taxes/Total assets = 0.31, X4 = Market value of equity/Book value of long-term debt = 0.85, X5 = Sales/Total assets ratio = 1.02. Calculate and interpret the Altman's Z-score for this firm and round the final Z-score to 2 decimal places. Hint: Z = 1.2X1 + 1.4X2+ 3.3X3 + 0.6X4 + 1.0X5. A z-score of <1.81 indicates high risk of bankruptcy and a z-score of >2.99 indicates low risk of bankruptcy.

Reference no: EM131543381

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