Question

Fair-to-Midland Manufacturing, Inc. (FMM), has applied for a loan at True Credit Bank. Jon Fulkerson, the...

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 $105,000
  EBIT 8,400
  Net working capital 4,900
  Book value of equity 34,000
  Accumulated retained earnings 18,300
  Sales 107,000

   

The stock price of FMM is $36 per share and there are 6,500 shares outstanding. What is the Z-score for this company? (Round to three decimal places)

*answer is NOT 1.04, 1.0127 or 3.33. Thanks!!

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Answer #1

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

where,

A = Net Working Capital / Total Assets

B = Retained Earnings / Total assets

C = Earnings before Interest and Tax / Total Assets

D = Market value of Equity / Book Value of Debt

E = Sales / Total Assets

Market Value of Equity = 36 * 6500

= $234000

Book Value of Debt = Total Assets - Book Value of Equity

= $105000 - $34000

= $71000

Altman Z Score =

= 0.056 + 0.244 + 0.264 + 1.978 + 1.019

= 3.561

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