3 Robertson identifies four main elements which cause changes in the financial health of a company: trading
Question:
3 Robertson identifies four main elements which cause changes in the financial health of a company:
trading stability; declining profits; declining working capital; increase in borrowings.30 Robertson’s Z-score is represented by:
where X1 = (Sales – Total assets)/Sales X2 = Profit before tax/Total assets X3 = (Current assets – Total debt)/Current liabilities X4 = (Equity – Total borrowing)/Total debt X5 = (Liquid assets – Bank overdraft)/Creditors Interpretation of the Z-score concentrates on rate of change from one period to the next. If the score falls by 40% or more in any one year, immediate investigations must be made to identify and rectify the cause of the decrease in Z-score. If the score falls by 40% or more for two years running, the company is unlikely to sur vive.
Compare and contrast Rober tson’s Z-score with:
(i) Altman’s Z-score;
(ii) Taffler’s Z-score and PAS-score.
Step by Step Answer:
Financial Accounting And Reporting
ISBN: 9780273712312
12th Edition
Authors: Barry Elliott, Jamie Elliott