3) A Friend Has Approached You With The Following Financial Information About Three Companies He Invested In All

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3) A friend has approached you with the following financial information about three companies
Outline
he invested in, all in the same industry. He is trying to determine whether to divest from all or
8
any of these companies for fear of losing his investment. Using the Altman Z score, provide him
with a good explanation about the financial status of each of the companies so that he can make a
Case Study Analysis 2:
good decision and not lose his money to bankruptcy. Show your work and explain the
implication of the score of each company (25 Points).
Company A
Company B
Company C
Total Assets
$ 8,000,000.00
$ 11,000,000.00
$
5,000,000.00
Working Capital
$
5,000,000.00
$
50.000.00
1,500,000.00
Retained Earnings
$
1,000,000.00
$
15,000.00
20,000.00
Operating Income
$ 10,000,000.00
$
150,000.00
$
2,100,000.00
Market Value of
Equity
$
2,000,000.00
$
100,000.00
400,000.00
Total Liabilities
$
500,000.00
$ 10,500,000.00
7,000,000.00
Total Sales
$ 15,000,000.00
$ 2,100,000.00
$
4,600,000.00
Z = 1.2×1 + 1.4×2 + 3.3×3 + 0.6×4 + 1.0xs
X1 = Working capital/Total assets (%)
x2 = Retained earnings/Total assets (%)
X3 = Earnings before interest and taxes/Total assets (%)
X4 = Market value of equity/Total liabilities (%)
X5 = Sales/Total assets (number of times)
Company A- Z= (1.2) 0.625 + (1.4) 0.125 + (3.3) 1.25 + (0.6) 4 + (1.0) 1.875= 9.325 (Favorable financial
condition)
Company B- Z= (1.2) 0.005 + (1.4) 0.001 + (3.3) 0.01 + (0.6) 0.009 + (1.0) 0.19 = 0.2358 (Bankruptcy)
Company C- Z= (1.2) 0.3 + (1.4) 0.004 + (3.3) 0.42 + (0.6) 0.057 + (1.0) 0.92 = 2.7 (Probability of
Bankruptcy in the next couple years)Managerial Accounting