The Z-score bankruptcy prediction model uses balance sheet and income information to arrive at a Z-Score, which can be used to predict financial distress:

Z=(Working capital/Total assets)1.2+(Retained earnings/Total assets)1.4+(EBIT/Total assets)3.3+(Sales/Total assets)0.99+(MV equity/Total liabilities)0.6

EBIT is earnings before interest and taxes. MV equity is the market value of common equity, which can be determined by multiplying stock price by shares outstanding.

Following extensive testing, it has been shown that companies with Z-scores above 3.0 are unlikely to fail; those with Z-scores below 1.81 are very likely to fail. While the original model was developed for publicly held manufacturing companies, the model has been modified to apply to companies in various industries, emerging companies, and companies not traded in public markets.

a.Use information in the financial statements ofApple Inc and Tesla Inc to compute the Z-score for the years 2017 and 2019.See above "EDGAR full text search" in order to access and download the financialStatement.

b.Interpret your results. Where do the companies fall in the financial distress range?

See below MV equity:

Apple Inc

2017: 790,050.10

2018: 1,073,390.54

2019: 995,151.57

Tesla Inc

2017: 52,554.95

2018: 57,442.28

2019: 75,717.73