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NOTE: Throughout this lab, every time a screenshot is requested, use your computer's screenshot tool, and paste each screenshot to the same Word document. Label each screenshot in accordance to what is noted in the lab. This document with all of the screenshots included should be uploaded through Connect as a Word or PDF document when you have reached the final step of the lab.

In this lab, you will:

Required:

1. Compute the five Altmans factors/ratios used to predict bankruptcy.

2. Weight each of those factors/ratios using Altmans bankruptcy prediction weights to arrive at Altmans Z-score.

3. Classify each company as either in the distress zone, gray zone, or safe zone for bankruptcy using Altmans classifications through use of a histogram.

Ask the Question: Which companies do we predict will go bankrupt?

Master the Data: Following the instructions of Lab 8-1, analyze the chance of bankruptcy for manufacturing firms included in the Lab 8-1 Alt Data.xlsx dataset.

Software needed

• Excel
• Screen capture tool (Windows: Snipping Tool; Mac: Cmd+Shift+4)

Data: Excel File Lab 8-1 Alt Data.xlsx.

Perform the Analysis: Refer to Lab 8-1 Alternate in the text for instructions and Lab 8-1 steps for each of the lab parts.

Share the Story: We now have a bankruptcy prediction for every retail company with availability date for each firm-year combination. Auditors can use this score to understand the financial risk facing their client. Investors can use this score to understand the financial risk they face if they invest in the firm. Banks and lenders can also use this score to decide if the company will be around to pay the loan back when it is due.

rev: 09_21_2020_QC_CS-228676

Required:

1. How many firms have an Altman Z-score less than 1.8 and fall in the Distress Zone?

multiple choice 1

• 5,396

• 3,662

• 9,683

• 18,741

2. How many firms have an Altman Z-score greater than or equal to 1.8, but less than 3.0 and fall in the Gray Zone?

multiple choice 2

• 18,741

• 5,396

• 3,662

• 9,683

3. Based on the Altman Zs formulas, the ________ each of the five factors (or financial ratios), the _______ the chance of going bankrupt.

multiple choice 3

• lower; lower

• higher; higher

• lower; higher

4. For factor X4, what is the appropriate weight based on Altmans Z?

multiple choice 4

• 0.6

• 1

• 1.4

• 3.3

5. How many companies/years (observations) are considered in this dataset?

multiple choice 5

• 18,741

• 18,743

• 18,742

• 18,740