Question
Bankruptcy Risk and Z-Score Analysis Following are selected ratios for American Airways for two recent fiscal years. Ratio 2005 2006 Current ratio 0.725 0.740 Working
Bankruptcy Risk and Z-Score Analysis Following are selected ratios for American Airways for two recent fiscal years.
Ratio | 2005 | 2006 |
---|---|---|
Current ratio | 0.725 | 0.740 |
Working capital to total assets | (0.088) | (0.091) |
Retained earnings to total assets | (0.176) | (0.183) |
EBIT to total assets | 0.025 | 0.064 |
Market value of equity to total liabilities | 0.150 | 0.250 |
Sales to total assets | 0.790 | 0.870 |
Compute and interpret Altman Z-scores for the company for both years. (Do not round until your final answer; then round your answers to two decimal places.) 2005 z-score = Answer 2006 z-score = Answer Which of the following statements best describes the company's Altman z-scores?
Both Altman z-scores are below 1.80 which indicate the company has a very high probability of bankruptcy.
Both Altman z-scores are above 3.00 which indicate the company has a very high probability of bankruptcy.
Both Altman z-scores are below 1.80 which indicate the company has a very low probability of bankruptcy.
Both Altman z-scores are above 3.00 which indicate the company has a very low probability of bankruptcy.
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