Using the Altmans Z-score model assess the financial health of the company

The following data relates to a company in the telecommunications industry for the year to 31 December 2011:
Item Sh. 000
Sales 30 000
Total assets 25 678
Retained earnings 177
Total liabilities 15 600
Working capital 1 777
Earnings before interest and tax 2 605
Market value of equity 10 098
Book value of long-term debt 5 044

---

Z = 1.2 X1+1.4X2+3.3X3+0.6X4+1.0X5
X1 =Working capital/total assets
X2=Retained earnings/total assets
X3= EBIT/ Total assets
X4= Market value of equity/ book value of long-term debt
X5= Sales/total assets
X1: 1 777 000/25 678 000 = 0.0692
X2: 177 000/25 678 000 = 0.00689
X3: 2 605 000/25 678 000= 0.10145
X4:10 098 000/ 5 044 000 = 2.002
X5: 30 000 000/25 678 000= 1.1683
Z = 1.2 (0.0692) +1.4(0.00689) +3.3(0.10145) +0.6(2.002) +1.0(1.1683)
= 0.08304+0.009646+0.3348+1.2912+1.1683 =2.796986
= 2.7970
A Z score of greater than 1.8 but less than 2.99 does not provide a clear financial health of a company. Therefore, am not sure about the firm’s level of financial risk

---

simpleman Anto answered the question on February 8, 2018 at 11:32

Exams With Marking Schemes

• Grade 1
• Grade 2
• Grade 3
• Grade 4
• Grade 5
• Grade 6
• Grade 7
• Grade 8
• Grade 9
• PP1
• PP2
• Playgroup
• Form 1
• Form 2
• Form 3
• Form 4

Related Questions

---

• Prepare a net value added statement for the year ended 31st December, 2015 (Solved)
  

  The information below relates to Jumuia Ltd, a listed company for the year ended 31st December, 2015
  Shs
  Purchase of raw materials 10 200 000
  Turnover 25 160 000
  Salaries and wages 6 800 000
  Taxation for the year 2 040 000
  Dividends 816 000
  Depreciation 1 360 000
  Water, power and insurance 2 040 000
  Finance charge and leases 680 000
  
  

  Date posted: February 8, 2018 .    Answers (1)

• What is a research problem?Give three examples to illustrate your answer. (Solved)
  

  What is a research problem?Give three examples to illustrate your answer.

  Date posted: January 5, 2018 .    Answers (1)

• What is a policy in insurance? (Solved)
  

  What is a policy in insurance?

  Date posted: December 15, 2017 .    Answers (1)

• Give six challenges facing kussco operations in Kenya. (Solved)
  

  Give six challenges facing kussco operations in Kenya.

  Date posted: December 12, 2017 .    Answers (1)

• Outline four sources of funds of a cooperative society. (Solved)
  

  Outline four sources of funds of a cooperative society.

  Date posted: December 12, 2017 .    Answers (1)

• Give six reasons that led to the establishment of the cooperative saving scheme. (Solved)
  

  Give six reasons that led to the establishment of the cooperative savings scheme.

  Date posted: December 12, 2017 .    Answers (1)

• Cite companies that do not need the consumer orientation concept of marketing. (Solved)
  

  Cite companies that do not need the consumer orientation concept of marketing.

  Date posted: October 3, 2017 .    Answers (1)

• Give the techniques of managing public debt (Solved)
  

  Give the techniques of managing public debt

  Date posted: September 30, 2017 .    Answers (1)

• What is the difference between capital and money markets? (Solved)
  

  What is the difference between capital and money markets?

  Date posted: September 28, 2017 .    Answers (1)

• What are the purposes of taxation in kenya? (Solved)
  

  What are the purposes of taxation in kenya?

  Date posted: September 17, 2017 .    Answers (1)

• Differentiate between impact of tax and incidence of tax? (Solved)
  

  Differentiate between impact of tax and incidence of tax?

  Date posted: September 17, 2017 .    Answers (1)