Compute and Interpret Z-score Refer to the financial statements for Lockheed Mar
ID: 2772892 • Letter: C
Question
Compute and Interpret Z-score
Refer to the financial statements for Lockheed Martin Corporation in P4-30 to answer the requirements. As of December 31, 2012 and 2011, there were approximately 322,583,334 and 325,105,500 shares outstanding. The company's stock closed at $92.29 on December 31, 2012, and at $80.90 on December 31, 2011.
(a) Compute and compare the Altman Z-scores for both years. (Do not round until your final answer; then round your answers to two decimal places.)
2012 Z-score = Answer
2011 Z-score = Answer
What explains the apparent trend?
There is a slight upward shift in Z-score for 2012. Lockheed earnings declined over the year as well as its market value of equity.
There is a slight downward shift in Z-score for 2012. Lockheed earnings improved over the year as well as its market value of equity.
There is a slight upward shift in Z-score for 2012. Lockheed earnings improved over the year as well as its market value of equity.
There is a slight downward shift in Z-score for 2012. Lockheed earnings declined over the year as well as its market value of equity.
(b) Is the company more likely to go bankrupt given the Z-score in 2012 compared to 2011?
The company’s financial health improved slightly, though it still remains in the “gray area” of interpretation for Altman’s Z-score. As long as its Z-score persists at this level or higher, there should be no imminent threat of bankruptcy.
The company’s financial health declined slightly, though it still remains in the “gray area” of interpretation for Altman’s Z-score. As long as its Z-score persists at this level or higher, there will be an imminent threat of bankruptcy.
The company’s financial health improved greatly, though it still remains in the “gray area” of interpretation for Altman’s Z-score. As long as its Z-score persists at this level or higher, there will be imminent threat of bankruptcy.
The company’s financial health declined slightly, though it still remains in the “gray area” of interpretation for Altman’s Z-score. As long as its Z-score persists at this level or higher, there should be no imminent threat of bankruptcy.
Consolidated Statements of Earnings Year Ended December 31 (In millions) 2012 2011 2010 Net sales Products $ 37,817 $ 36,925 $ 36,380 Services 9,365 9,574 9,291 Total net sales 47,182 46,499 45,671 Cost of sales Products (33,495) (32,968) (32,539) Services (8,383) (8,514) (8,382) Severance and other charges (48) (136) (220) Other unallocated costs (1,060) (1,137) (686) Total cost of sales (42,986) (42,755) (41,827) Gross Profit 4,196 3,744 3,844 Other income, net 238 276 261 Operating profit 4,434 4,020 4,105 Interest expense (383) (354) (345) Other non-operating income (expense), net 21 (35) 18 Earnings before taxes 4,072 3,631 3,778 Income tax expense (1,327) (964) (1,164) Net earnings from continuing operations 2,745 2,667 2,614 Net (loss) earnings from discontinued operations -- (12) 264 Net earnings $ 2,745 $ 2,655 $ 2,878Explanation / Answer
Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1E where
A: Working capital / total assets [Working capital = current assets - current liabilities]
B: Retained earnings / Total assets
C: EBIT / Total assets
D: Market value of equity / Liabilities
E: Sales / Total Assets
So:
(a) Both Market value of equity as well as EBIT (Operating profit) increased from 2011 to 2012.
(b) A Z-score below 2.99 is a Grey area. As long as the score remains at this level or higher, there is no threat of imminent bankruptcy.
$Million 2011 2012 Sales 46,499 47,182 Total Assets 37,908 38,657 Liablities 36,907 38,618 Retained Earnings 11,937 13,211 Current Assets (1) 14,094 13,855 Current Liabilities (2) 12,130 12,155 Working Capital (1)-(2) 1,964 1,700 EBIT (Operating Profit) 4,020 4,434 Outstanding No. Of Shares (3) 325 323 Share Closing price ($) (4) 80.9 92.29 Market value of Equity (3) x (4) 26,293 29,810 ALTMAN Z- SCORE PARAMETERS A 0.052 0.044 B 0.315 0.342 C 0.106 0.115 D 0.712 0.772 E 1.227 1.221 ALTMAN Z-SCORE 2.507 2.593Related Questions
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