Question

Fair-to-Midland Manufacturing, Inc., (FMM) has applied for a loan at True Credit Bank. Jon Fulkerson, the credit analyst at the bank, has gathered the following information from the company’s financial statements:

  

Total assets	$101,000
EBIT	8,200
Net working capital	4,700
Book value of equity	32,000
Accumulated retained earnings	18,100
Sales	105,000

   

The stock price of FMM is $34 per share and there are 6,300 shares outstanding. What is the Z-score for this company? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

  

Z-score

Answer 1

  Z-score = 1.2 * working capital / total assets + 1.4 * Retained earnings / total assets + 3.3 * EBIT / total assets + 0.6 * Market value of equity / Total liabilities + 1.0 * sales / total assets

= 1.2 * 4,700/ 101,000 + 1.4 *18,100 / 101,000 + 3.3 * 8,200 / 101,000 + 0.6 * ($34 * 6300) / 69000 + 1.0 * 105,000 / 101,000

= 0.0558 + 0.2509 + 0.2679 + 1.8626 + 1.0396

= 3.477

Note:-Total liabilities = total assets - total Book value of equity

= 101,000 -32000

= 69000