Credit Analysis:Altman Z-Score Model

NAME OF
COMPANY
FIRST CALENDAR

First Security Islami Bank Ltd.

YEAR OF DATA
NUMBER OF YEARS
OF DATA

2007
5

Particulars
Operating Income
Net Income
Current Assets
Current Liabilities
Net Working Capital
Total Assets
Total Liabilities
Book Value of Equity Or Stockholders' Equity
Retained Earnings

2007
414,531,487
30,630,728
18,916,959,557
13,382,093,187
5,534,866,370
26,941,780,871
25,807,489,929
1,134,290,942
14,129,544

2008
2009
572,782,959
1,327,633,708
104,282,064
326,837,749
18,975,825,148 23,236,761,373
24,130,108,815 37,231,337,995
(5,154,283,667) (13,994,576,622)
31,239,393,418 47,978,552,952
28,700,820,412 45,113,142,197
2,538,573,006
2,865,410,755
80,490,857
277,961,056

2010
2,085,207,938
548,600,731
36,860,112,993
51,784,213,719
(14,924,100,726)
63,619,797,799
59,699,786,313
3,920,011,486
399,841,641

2011
2,738,258,073
579,939,082
55,763,458,829
76,249,642,013
(20,486,183,184)
91,012,899,089
86,463,948,521
4,500,173,333
371,651,119

67.85%
57.06%
1.19

5.71%
31.32%
0.18

Degree of Financial Leverage

% change in net income
% change in operating income
Degree of Financial Leverage
Degree of Financial Leverage (Average)

240.45%
38.18%
6.30

213.42%
131.79%
1.62

2.32

Interpretation: For every 2 percent change in operating income , net income changes 2.32 percent dye to financial leverage.
Financial leverage tends to deincrease the risk of ownership for shareholders.
Altman Z score
6.56
3.26
1.05
6.72

Formula
First Security Islami Bank Ltd.
Retained Earnings/Total Assets
Operating Income/Total assets
Book Value of Equity/Total Liabilities

Z Score
Z Score (Average)

0.2054
0.0005
0.0154
0.0440

(0.1650)
0.0026
0.0183
0.0884

(0.2917)
0.0058
0.0277
0.0635

(0.2346)
0.0063
0.0328
0.0657

(0.2251)
0.0041
0.0301
0.0520

1.6609
(0.4726)

(0.4603)

(1.4387)

(1.0427)

(1.0819)

Interpretation: Where z< 1.23 indicates a bankruptcy prediction, 1.23 z 2.90 indicates a gray area, and z> 2.90 indicates no bankruptcy.
As z = -0.4726, it indicates a bankruptcy prediction,. That's mean it can be concluded that firm's credit risk is defined. Lender will be sure in position to predict it's credit risk.