Z-SCORE PROJECT

Submitted to Sir Adnan Bashir

Submission Date 28-02-2023

Course Code FIN-436

Course Title Risk Management

Submitted By
Sr. Name Roll No
1 ABU BAKAR ALI 19010920-015
2 MUHAMMAD HAMZA 19010920-019
3 MUHAMMAD GULBAZ 19010920-024
4 SAMEER AHMED 19010920-038
5 FAIZAN SHABIR 19010920-039
6 TEHZEEB-UL-HASSAN 19010920-152
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What is Altman Z-score Model?

Altman’s Z-Score model is a numerical measurement that is used to predict the chances of a
business going bankrupt in the next two years. The model was developed by American finance
professor Edward Altman in 1968 as a measure of the financial stability of companies.

Z –Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

where:
X1 = Working capital/Total assets
X2 = Retained earnings/Total assets
X3 = Earnings before interest and taxes/Total assets
X4 = Market value of equity/Book value of total liabilities
X5 = Sales/Total assets

It is important to note that the interpretation of the Z-score is as follows:

• Z-score above 2.99: Company is considered safe

• Z-score between 1.81 and 2.99: Company is in the grey area
• Z-score below 1.81: Company is considered to be in financial distress

Sr. Companies Name Years

1 Honda Atlas car Pakistan Ltd 2022, 2021, 2020
2 Indus motors Pakistan Ltd 2022, 2021, 2020
3 Suzuki Pakistan Ltd 2021, 2020, 2019
4 Al-Ghazi Tractors Ltd 2021, 2020, 2019
5 Millat Tractors Ltd 2022, 2021, 2020
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Honda Atlas Car Pakistan Limited

Year 2022 2021 2020
Sales 108,048 67,362 55,046
EBIT 4,275 2,781 1,547
Total Assets 70,263 45,155 31,842
Working Capital 13,330 13,045 11,792
Retained Earnings (Unappropriated Profit) 2,576 1,812 823
Market Value of Equity 29,552 37,936 17,602
Book Value of Total Liabilities 50308 26959 15284
* Rupees in millions
To calculate the Altman Z-score for each of the three years, we need to first calculate the values
of X1, X2, X3, X4, and X5 using the given financial information, and then use the formula to
calculate the Z-score.

For 2022:
X1 = Working capital/Total assets = 13,330/70,263 = 0.1896

X2 = Retained earnings/Total assets = 2,576/70,263 = 0.0366

X3 = EBIT/Total assets = 4,275/70,263 = 0.0609

X4 = Market value of equity/Book value of total liabilities = 29,552/50,308 = 0.5869

X5 = Sales/Total assets = 108,048/70,263 = 1.5371

Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-score = 1.2(0.1896) + 1.4(0.0366) + 3.3(0.0609) + 0.6(0.5869) + 1.0(1.5371)

Z-Score = 1.0074 + 0.0512 + 0.2009 + 0.3521 + 1.5371

Z-Score = 3.1487

For 2021:
X1 = Working capital/Total assets = 13,045/45,155 = 0.2885
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X2 = Retained earnings/Total assets = 1,812/45,155 = 0.0401

X3 = EBIT/Total assets = 2,781/45,155 = 0.0615

X4 = Market value of equity/Book value of total liabilities = 37,936/26,959 = 1.4067

X5 = Sales/Total assets = 67,362/45,155 = 1.4915

Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-score = 1.2(0.2885) + 1.4(0.0401) + 3.3(0.0615) + 0.6(1.4067) + 1.0(1.4915)

Z-Score = 0.3462 + 0.0562 + 0.2030 + 0.8440 + 1.4915

Z-Score = 2.9410

For 2020:
X1 = Working capital/Total assets = 11,792/31,842 = 0.3702

X2 = Retained earnings/Total assets = 823/31,842 = 0.0258

X3 = EBIT/Total assets = 1,547/31,842 = 0.0486

X4 = Market value of equity/Book value of total liabilities = 17,602/15,284 = 1.1521

X5 = Sales/Total assets = 55,046/31,842 = 1.7269

Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.3702) + 1.4(0.0258) + 3.3(0.0486) + 0.6(1.1521) + 1.0(1.7269)

Z-Score = 0.4442 + 0.0361 + 0.1604 + 0.6913 + 1.7269

Z-Score = 3.0589

Therefore, the Altman Z-score for the years 2022, 2021, and 2020 are 3.1487, 2.9410, and
3.0589, respectively.
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Based on this interpretation, we can conclude that for all three years, the company is considered
to be safe as the Z-scores are all above 2.99. However, it is important to consider other factors
and perform a thorough financial analysis before making any investment decisions.
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Indus Motors Pakistan Limited

Year 2022 2021 2020
Sales 275,505 179,161 86,167
EBIT 25,566 18,332 7,373
Total Assets 213,965 133,905 80,278
Working Capital 54011 29753 24991
Retained Earnings (Unappropriated Profit) 9,077 7,767 3,735
Market Value of Equity 90,000 98,600 78,200
Book Value of Total Liabilities 159,954 85,704 38,626
* Rupees in millions
To calculate the Altman Z-score, we need to calculate the values of X1, X2, X3, X4, and X5 for
each year, and then plug them into the formula.

Year 2022:

X1 = Working capital/Total assets = 54,011/213,965 = 0.2526

X2 = Retained earnings/Total assets = 9,077/213,965 = 0.0424

X3 = EBIT/Total assets = 25,566/213,965 = 0.1194

X4 = Market value of equity/Book value of total liabilities = 90,000/159,954 = 0.5626

X5 = Sales/Total assets = 275,505/213,965 = 1.2880

Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-score = 1.2(0.2526) + 1.4(0.0424) + 3.3(0.1194) + 0.6(0.5626) + 1.0(1.2880)

Z-score = 1.5499 + 0.0594 + 0.3934 + 0.3376 + 1.2880

Z-score = 3.6283
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Year 2021:

X1 = Working capital/Total assets = 29,753/133,905 = 0.2221

X2 = Retained earnings/Total assets = 7,767/133,905 = 0.0580

X3 = EBIT/Total assets = 18,332/133,905 = 0.1368

X4 = Market value of equity/Book value of total liabilities = 98,600/85,704 = 1.1497

X5 = Sales/Total assets = 179,161/133,905 = 1.3378

Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-score = 1.2(0.2221) + 1.4(0.0580) + 3.3(0.1368) + 0.6(1.1497) + 1.0(1.3378)

Z-score = 1.3465 + 0.0812 + 0.4514 + 0.6898 + 1.3378

Z-score = 3.9067

Year 2020:

X1 = Working capital/Total assets = 24,991/80,278 = 0.3113

X2 = Retained earnings/Total assets = 3,735/80,278 = 0.0465

X3 = EBIT/Total assets = 7,373/80,278 = 0.0918

X4 = Market value of equity/Book value of total liabilities = 78,200/38,626 = 2.0236

X5 = Sales/Total assets = 86,167/80,278 = 1.0735

Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-score = 1.2(0.3113) + 1.4(0.0465) + 3.3(0.0918) + 0.6(2.0236) + 1.0(1.0735)

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Z-score = 0.3736 + 0.0651 + 0.3039 + 1.2142 + 1.0735

Z-score = 3.0303

Therefore, the Altman Z-score for the three years 2022, 2021, and 2020 are 3.6283, 3.9067, and
3.0303, respectively.
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Suzuki Pakistan Limited

Year 2021 2020 2019
Sales 160,08 76,720 116,548
EBIT 4,620 824 (2,860)
Total Assets 91,989 66,647 77,391
Working Capital 5,223 4,038 6,898
Retained Earnings (Unappropriated Profit) 2,600 (1,668) (2,941)
Market Value of Equity 19,505 19,754 18,952
Book Value of Total Liabilities 65,163 42,354 51,708
* Rupees in millions
To calculate the Altman Z score for each year, we need to calculate the values of X1 to X5 for
each year, and then substitute them into the formula:

Year 2021:

X1 = Working capital/Total assets = 5,223/91,989 = 0.057

X2 = Retained earnings/Total assets = 2,600/91,989 = 0.028

X3 = EBIT/Total assets = 4,620/91,989 = 0.050

X4 = Market value of equity/Book value of total liabilities = 19,505/65,163 = 0.300

X5 = Sales/Total assets = 160,080/91,989 = 1.740

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.057) + 1.4(0.028) + 3.3(0.050) + 0.6(0.300) + 1.0(1.740)

Z-Score = 2.22

Therefore, the Altman Z score for 2021 is 2.22.

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Year 2020:

X1 = Working capital/Total assets = 4,038/66,647 = 0.061

X2 = Retained earnings/Total assets = (–1,668)/66,647 = –0.025

X3 = EBIT/Total assets = 824/66,647 = 0.012

X4 = Market value of equity/Book value of total liabilities = 19,754/42,354 = 0.466

X5 = Sales/Total assets = 76,720/66,647 = 1.151

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.061) + 1.4(–0.025) + 3.3(0.012) + 0.6(0.466) + 1.0(1.151)

Z-Score = 1.15

Therefore, the Altman Z score for 2020 is 1.15.

Year 2019:

X1 = Working capital/Total assets = 6,898/77,391 = 0.089

X2 = Retained earnings/Total assets = (–2,941)/77,391 = –0.038

X3 = EBIT/Total assets = (–2,860)/77,391 = –0.037

X4 = Market value of equity/Book value of total liabilities = 18,952/51,708 = 0.366

X5 = Sales/Total assets = 116,548/77,391 = 1.507

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.089) + 1.4(–0.038) + 3.3(–0.037) + 0.6(0.366) + 1.0(1.507)

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Z-Score = 0.77

Therefore, the Altman Z score for 2019 is 0.77.

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Al-Ghazi Tractors Limited

Year 2021 2020 2019
Sales 20,578 11,935 13,992
EBIT 4,163 1,968 1,411
Total Assets 9,490 5,183 5,475
Working Capital 2,808 1,114 1,114
Retained Earnings 3,683 949 613
Market Value of Equity 19,776 21,214 21,173
Book Value of Total Liabilities 5,516 2,895 4,571
* Rupees in millions
To calculate the Altman Z-score, we need to first calculate the values of X1, X2, X3, X4, and X5
for each of the three years. Then we can use the formula to calculate the Z-score for each year.

Year 2021:

X1 = Working capital/Total assets = 2,808/9,490 = 0.296

X2 = Retained earnings/Total assets = 3,683/9,490 = 0.388

X3 = EBIT/Total assets = 4,163/9,490 = 0.439

X4 = Market value of equity/Book value of total liabilities = 19,776/5,516 = 3.589

X5 = Sales/Total assets = 20,578/9,490 = 2.170

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.296) + 1.4(0.388) + 3.3(0.439) + 0.6(3.589) + 1.0(2.170)

Z-Score = 0.355 + 0.543 + 1.448 + 2.153 + 2.170 Z-Score

Z-Score = 6.669
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Year 2020:

X1 = Working capital/Total assets = 1,114/5,183 = 0.215

X2 = Retained earnings/Total assets = 949/5,183 = 0.183

X3 = EBIT/Total assets = 1,968/5,183 = 0.380

X4 = Market value of equity/Book value of total liabilities = 21,214/2,895 = 7.325

X5 = Sales/Total assets = 11,935/5,183 = 2.303

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.215) + 1.4(0.183) + 3.3(0.380) + 0.6(7.325) + 1.0(2.303)

Z-Score = 0.258 + 0.256 + 1.254 + 4.395 + 2.303

Z-Score = 8.466

Year 2019:

X1 = Working capital/Total assets = 1,114/5,475 = 0.203

X2 = Retained earnings/Total assets = 613/5,475 = 0.112

X3 = EBIT/Total assets = 1,411/5,475 = 0.258

X4 = Market value of equity/Book value of total liabilities = 21,173/4,571 = 4.642

X5 = Sales/Total assets = 13,992/5,475

Z-Score = 2.552

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

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Z-Score = 1.2(0.203) + 1.4(0.112) + 3.3(0.258) + 0.6(4.642) + 1.0(2.552)

Z-Score = 0.244 + 0.157 + 0.851 + 2.785 + 2.552

Z-Score = 6.589

Therefore, the Altman Z-scores for the years 2021, 2020, and 2019 are 6.669, 8.466, and 6.589,
respectively. Thus, all three years have an Altman Z-score in the safe zone.
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Millat Tractors Limited

Year 2022 2021 2020
Sales 53,374 43,953 22,942
EBIT 8,912 7,888 3,187
Total Assets 20,066 24,806 10,804
Working Capital 2,480 2,938 1,380
Retained Earnings 6,098 8,532 3,573
Market Value of Equity 85,115 60,840 35,187
Book Value of Total Liabilities 12,999 15,713 6,732
* Rupees in millions
To calculate the Altman Z-score for each year, we need to first calculate X1, X2, X3, X4, and X5
for each year using the given formulas:

Year 2022:
X1 = Working capital / Total assets = 2,480 / 20,066 = 0.1236

X2 = Retained earnings / Total assets = 6,098 / 20,066 = 0.3042

X3 = EBIT / Total assets = 8,912 / 20,066 = 0.4445

X4 = Market value of equity / Book value of total liabilities = 85,115 / 12,999 = 6.5450

X5 = Sales / Total assets = 53,374 / 20,066 = 2.6579

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.1236) + 1.4(0.3042) + 3.3(0.4445) + 0.6(6.5450) + 1.0(2.6579)

Z-Score = 4.5952

Year 2021:
X1 = Working capital / Total assets = 2,938 / 24,806 = 0.1183

X2 = Retained earnings / Total assets = 8,532 / 24,806 = 0.3442

X3 = EBIT / Total assets = 7,888 / 24,806 = 0.3180

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X4 = Market value of equity / Book value of total liabilities = 60,840 / 15,713 = 3.8709

X5 = Sales / Total assets = 43,953 / 24,806 = 1.7715

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.1183) + 1.4(0.3442) + 3.3(0.3180) + 0.6(3.8709) + 1.0(1.7715)

Z-Score = 2.7304

Year 2020:
X1 = Working capital / Total assets = 1,380 / 10,804 = 0.1276

X2 = Retained earnings / Total assets = 3,573 / 10,804 = 0.3305

X3 = EBIT / Total assets = 3,187 / 10,804 = 0.2950

X4 = Market value of equity / Book value of total liabilities = 35,187 / 6,732 = 5.2253

X5 = Sales / Total assets = 22,942 / 10,804 = 2.1186

Z-Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Z-Score = 1.2(0.1276) + 1.4(0.3305) + 3.3(0.2950) + 0.6(5.2253) + 1.0(2.1186)

Z-Score = 3.2387
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REFERENCES
PSX / Companies financial reports and historical prices

Honda Atlas car Pakistan Ltd

https://dps.psx.com.pk/company/HCAR

Indus motors Pakistan Ltd

https://dps.psx.com.pk/company/INDU

Suzuki Pakistan Ltd

https://dps.psx.com.pk/company/PSMC

Al-Ghazi Tractors Ltd

https://dps.psx.com.pk/company/AGTL

Millat Tractors Ltd

https://dps.psx.com.pk/company/MTL