Robertson identifies four main elements which cause changes in the financial health of a company: trading stability;
Question:
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.25 Robertson's Z-score is represented by:
Z = 3.0Xi + 3.OX2 + O.6X3 + O.3X4 + O.3X5 where Xi = (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 survive.
Compare and contrast Robertson’s Z-score with:
(i) Altman’s Z-score;
(ii) Taffler’s Z-score and PAS-score.
LO29-4
Step by Step Answer:
Financial Accounting And Reporting
ISBN: 9780273703648
10th Edition
Authors: Mr Barry Elliott, Jamie Elliott