For private firm, Altman adjusts the public model by changing the numerator for the variable X4 from the market value of equity to the book value of equity. The revised model follows:

Z = .717 (X1) + .847 (X2) + 3.11 (X3) + .420 X4 + .998 (X5)

Where:

X1 = Net Working Capital/Total assets

X2 = Retained Earnings/Total Asset

X3 = Earnings before interest and taxes/Total Assets

X4 = Book value of equity/Book value of Total Liabilities

X5 = Sales/Total Assets

The model predict bankruptcy when Z

QUESTION :

a) Calculate Altman Z-score for each company and interpret the results.

b) Calculate the debt ratio for each of the companies.

c) Explain the impact of increase debt ratio to Altman Z-score.

Independent Variable X1 X2 X3 X4 X5 ABC, Inc. 0.075 0.767 0.095 2.500 0.900 KLM, Inc. -0.115 0.895 - 0.075 1.250 1.286 XYZ, Inc. -0.321 0.605 - 0.108 1.125 0.710