Analyze and interpret the Rite Aid's financial health (interpret each ratio and individual components) from the solved Altman's formula below to support your argument of the company being a candidate for turnaround and decision making.

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Notes:

Rite Aid's Z-score is 3.15, calculated using data from Feb, 2022 annual report (Note: If the Altman Z score is > 3, then the company is in the safe zone or financially sound).

The equation for the Altman Z score is as follows:

Z = 1.2*(X1) + 1.4*(X2) + 3.3*(X3) + 0.6*(X4) + 1.0*(X5)

Z = 1.2 (1.17) + 1.4 (-0.68) + 3.3 (-0.06) + 0.6 (0.04) + 1.0 (2.88)

Z = 3.15 (Rite Aid)

Working capital to total assets, retained profits to total assets, earnings before interest and taxes to total assets, market value of equity to book value of total liabilities, and sales to total assets are the five financial ratios used to compute the Altman Z score. The final score is calculated by weighting and averaging these ratios.

The components of the Altman Z score for J. Crew are as follows (calculated using 2022 annual report for Rite Aid:

(Interpret in detail each ratio mentioned below and components used in calculating each ratio). Is the company in the future danger, any turnaround or renewal needed?

X1 = Working capital to total assets: 1.17

X2 = Retained earnings to total assets: -0.68

X3 = Earnings before interest and taxes to total assets: -0.06

X4 = Market value of equity to book value of total liabilities: 0.04

X5 = Sales to total assets: 2.88

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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

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