Compute and Interpret Altman’s Z-scores (LO5)

Following is selected financial information for eBay Inc., for its fiscal years 2016 and 2015.

$ millions, except per share data 2016 2015 Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,875 $ 7,904 Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,847 2,263 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,847 17,755 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,308 11,179 Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530 741 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,959 7,713 Stock price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.69 27.48 Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,979 8,592 Earnings before interest and taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,325 2,197 Required

a. Compute and compare the Altman Z-scores for both years. What explains the apparent trend?

b. Is the company more likely to go bankrupt given the Z-score in 2016 compared to 2015? Explain.