Excerpts taken from the financial statements of Smothers, Inc. are as follows: F

Question

Excerpts taken from the financial statements of Smothers, Inc. are as follows:

From the balance sheet, current assets of $417 million and total assets of $1,000 million, and current liabilities of $228 million, total liabilities of $519 million, and retained earnings of $385 million.

From the income statement, sales of $926 million, operating income (EBIT) of $293 million, and net income of $118 million.

The company also has 26 million shares of common stock outstanding, which are valued at $49.33 per share.

What would be the Altman Z-score for this company? Present your answer to two decimal places. e.g. 20.00.

Explanation / Answer

The formula for Altman Z-score is:

Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Where:

A = working capital / total assets = (Current Assets - Current Liabilities)/total assets

= (417- 228)/1000 = 0.189

B = retained earnings / total assets = 385/1000 = 0.385

C = earnings before interest and tax / total assets = 293/1000 = 0.293

D = market value of equity / total liabilities

= (shares of common stock outstanding * Value per Share ) / total liabilities

= (26*49.33)/519 = 2.47

E = sales / total assets = 926/1000 = 0.926

Put all the values in te equation we get,

1.2(0.189) + 1.4(0.385) + 3.3(0.293) + 0.6(2.47) + 1.0(0.926) = 4.14

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