Altman’s Z score: It was published by Edward Altman in 1968.It helps investors to analyse the financial strength of a company and measure the bankruptcy of a company. There are three zones in Altman’s z-score: · Safe zone · Grey zone · Danger zone Safe Zone: If z-score is more than 2.99 that company is comes under safe zone. Grey Zone: If z-score is between 1.81 and 2.99 then that company comes under grey zone. Danger Zone: If z-score is less than 1.81 then that company is in danger zone. Formula: 1.2*(working capital/Total Assets) +1.4*(Retained Earnings /Total Assets) +3.3*(Earnings before interest and tax/Total Assets) +1.6*(The equity market value/Total Assets) +0.999*(Total Sales/Total Assets) With the help of this formula investors can predict the bankruptcy of a company within 2 years. It acts as a tool fo...
This blog is totally for education purpose which helps to solve finance related numerical like time value of money, annuity ,perpetuity, technique of capital budgeting, cost of capital, working capital management and hire purchase etc.