Question
1. Analyze and evaluate the role of Altman's Z score in determining Rite Aid's financial health and its interpretation (including Chapter 11 bankruptcy possibility). 2.
1. Analyze and evaluate the role of Altman's Z score in determining Rite Aid's financial health and its interpretation (including Chapter 11 bankruptcy possibility).
2. Share and solve the components and equation for the Altman Z score for Rite Aid. (Please Show the work from the income statement/balance sheet, etc. and the calculation in detail).
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References:
Rite Aid Corporation. (2022). Form 10-K 2022 Annual report.
https://s27.q4cdn.com/633053956/files/doc_financials/2022/ar/d3b229ff-5147-4849-bfe1-13cec0816db9.pdf
Rite Aid Corporation (RAD). (2022, July 14). Rite Aid Corporation financials. Yahoo finance. https://finance.yahoo.com/quote/RAD/financials?p=RAD
other sources:
Platt, H. D. (2004). Failure prediction. InPrinciples of corporate renewal(2nd ed., pp. 75-120). University of Michigan Press. (pp. 90-92)
Ashworth, W. (2020, April 28). Bankruptcy Watch: 10 Retail Stocks at Growing Risk. Kiplinger. https://www.kiplinger.com/slideshow/investing/t052-s001-bankruptcy-watch-10-retail-stocks-at growing-risk/index.html
Maurer, M. (2022, June 29). Rite Aid CFO Looks to Cut Debt as Earnings Suffer. The Wall Street Journal. https://www.wsj.com/articles/rite-aid-cfo-looks-to-cut-debt-as-earnings-suffer-11656535577?siteid=yhoof2
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Notes:
The equation for the Altman Z score is: (Platt, 2004)
Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.66(X4) + 1.0(X5)
Where:
X1 = Working Capital / Total Assets
X2 = Retained Earnings / Total Assets
X3 = Earnings Before Interest and Taxes / Total Assets
X4 = Market Value of Equity / Total Liabilities
X5 = Sales / Total Assets
Interpretation of scores:
< 1.81 are in danger (potential bankruptcy)
>= 3 financially sound
1.81-2.99 need further investigation
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| Variable | 2022 Value | Coefficient | Product |
| Working capital/total assets | X1 = (current assets - current liabilites) / total assets = | 1.2 | |
| Retained earnings/total assets | X2 = Accumulated deficit / total assets = | 1.4 | |
| EBIT/total assets | X3 = Net loss / total assets = | 3.3 | |
| Market value of equity/total liabilites | X4 = Most recent Stock closing price / total liabilities = | 0.6 | |
| Sales/total assets | X5 = total revenues / total assets = | 1 | |
| Z-score () | |||
| Public Firms, Z-score calculation, : 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5 | |||
| = 1.2() + 1.4() + 3.3() + 0.6() + 1.0() | |||
| = | |||
| Rite Aid Corporation (RAD) = |
| Required Data | Value | Page No. | Information Location (eg. Consolidated Balance sheets, Yahoo finance, etc.) | |
| Current Assets | ||||
| Current Liabilities | ||||
| Total Assets | ||||
| Total liabilities | ||||
| Retained earnings (Accumulated deficit) | ||||
| EBIT (Net loss) | ||||
| Market value (Most recent Stock closing price) | Yahoo Finance - RAD | |||
| Sales (total revenues) |
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John E Freunds Mathematical Statistics With Applications
Authors: Irwin Miller, Marylees Miller
8th Edition
978-0321807090, 032180709X, 978-0134995373
