Question
1) The following data are presented for Rocket Company. Working capital $100,000 Total assets 300,000 Retained earnings 40,000 Earnings before interest and taxes 60,000 Market
1) The following data are presented for Rocket Company.
Working capital $100,000
Total assets 300,000
Retained earnings 40,000
Earnings before interest and taxes 60,000
Market value of equity 100,000
Book value of total debt 220,000
Sales 400,000 Z Score
Formula: Z = .012X1 + .014X2 + .033X3 + .006X4 + .010X5
X1 = Working Capital/Total Assets
X2 = Retained Earnings (balance sheet)/Total Assets
X3 = Earnings Before Interest and Taxes/Total Assets
X4 = Market Value of Equity/Book Value of Total Debt
X5 = Sales/Total Assets
Required: a. Compute the Z score for Rocket Company.
b. Considering the Altman model, comment on the likelihood that this firm will experience financial failure.
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Operational Profitability Conducting Management Audits
Authors: Robert M. Torok, Patrick J. Cordon
1st Edition
0471172251, 978-0471172253
