Question

Compute and Interpret Altman's Z-scores
Following is selected financial information for eBay Inc., for its fiscal years 2013 and 2012.

(In millions, except per share data)	2013	2012
Current assets	$ 23,283	$ 21,398
Current liabilities	12,639	10,924
Total assets	41,488	37,074
Total liabilities	17,841	16,209
Shares outstanding	1,294	1,286
Retained earnings	18,854	15,998
Stock price per share	54.87	51.00
Sales	16,047	14,072
Earnings before interest and taxes	3,371	2,888

Compute and interpret Altman Z-scores for the company for both years. (Do not round until your final answer; then round your answers to two decimal places.)
2013 z-score = Answer

2012 z-score = Answer

Which of the following best describes the company's likelihood to go bankrupt given the z-score in 2013 compared to 2014.

The z-scores for both 2013 and 2012 are relatively the same. The company is sufficiently healthy for bankruptcy to remain a distant concern.

The z-score in 2013 is double the 2012 score. The z-score has increased sharply, which suggests the company has greatly increased the risk of bankruptcy.

The z-score in 2013 is half of the 2012 score. The z-score has decreased sharply, which suggests the company is in financial distress.

The z-score in 2013 is double the 2012 score. The z-score has increased sharply, which suggests the company has greatly lowered the risk of bankruptcy.

Answer 1

	Z-Scores	=	1.2A+1.4B+3.3C+0.6D+1.0E
	A	=	Working Capital/Total Assets
	B	=	Retained Earnings/Total Assets
	C	=	Earnings Before Interest & Tax/Total Assets
	D	=	Market Value of Equity/Total Liabilities
	E	=	Sales/Total Assets
	Amonts in million($)	2013	2012
1	Current assets	23,283.00	21,398.00
2	Current liabilities.	12,639.00	10,924.00
3	Total assets.	41,488.00	37,074.00
4	Total liability	17,841.00	16,209.00
5	shares outstanding	1,294.00	1,286.00
6	Retained earnings	18,854.00	15,998.00
7	stock price per share	54.87	51.00
8	sales	16,047.00	14,072.00
9	EBIT	3,371.00	2,888.00
10	Working capital(1-2)	10,644.00	10,474.00
11	Market value of eqiuty	71,001.78	65,586.00
	A(10/3)	0.2565561	0.282516
	B(6/3)	0.4544447	0.4315153
	C(9/3)	0.0812524	0.0778983
	D(11/4)	3.9796973	4.0462706
	E(8/3)	0.3867865	0.3795652
	Z-Score by putting the formulae above	3.9868277	4.0075325
Coclusion	Since the Z-Score in both the year is almost same and is having a rating of >3, hence the company is healthy and there is no sign of insolvency