Question

Consider an Australian company for which we know the following (all amounts in AUD):

working capital is 170'000;
total assets are 670'000;
earnings before interest and taxes are 60'000;
sales are 1'300'000;
the market value of equity is 380'000;
total liabilities are 240'000;
retained earnings are 300'000.
What is the Z-score

Answer 1

Z-score is 4.12

Answer 2

The Z-score is calculated as follows:

Z-score = (Working Capital + Retained Earnings) / (Total Assets - Total Liabilities)

Z-score = (170'000 + 300'000) / (670'000 - 240'000)

Z-score = 470'000 / 430'000

Z-score = 1.09

Answer 3

It is important to note that a Z-score of 4.12 is very high and would indicate very low bankruptcy risk for the company. It is possible that this high Z-score is due to the company having a strong financial position with high levels of working capital and retained earnings relative to its total assets and liabilities. However, it is also possible that there may be other factors impacting the calculation of the Z-score, such as the specific industry or market conditions that the company operates in.