4.

Z-Score

Jon fulkerson has also received a credit application from Seether, LLC, a private company.
An abbreviated portion of the financial information provided by the company is shown
below:

Total assets 75,000

EBIT 8,300
Net working capital 6,800
Book value of equity 26,000
Accumulated retained earnings 19,000
Total liabilities 49,000

What is the Z score for this company?

Solution:

The Z-score for private company is

T1 = (Current Assets-Current Liabilities) / Total Assets

= 6,800/75,000

= 0.091

T2 = Retained Earnings / Total Assets

= 19,000/75,000

= 0.253

T3 = Earnings before Interest and Taxes / Total Assets

= 8,300/75,000

= 0.111

T4 = Book Value of Equity / Total Liabilities

= 26,000/49,000

= 0.531

Therefore,

Z = 0.091T1 + 0.253T2 + 0.111T3 + 0.531T4