CMA Final · Strategic Performance Management and Business Valuation · Corporate Failure
Ananya Pharma Ltd has total assets of ₹400 lakh, working capital of ₹40 lakh, retained earnings of ₹80 lakh, EBIT of ₹32 lakh, market value of equity of ₹240 lakh, total liabilities of ₹160 lakh and sales of ₹480 lakh. Using Altman's original Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5, the Z-score is:
The Z-score is 2.764, found by adding 0.12, 0.28, 0.264, 0.90 and 1.20 from the five weighted ratios. This lies in the grey zone between 1.81 and 2.99, so the company is neither clearly safe nor clearly distressed.
- A2.764Correct
- B3.164
- C2.364
- D1.764
Explanation
X1 = 40/400 = 0.10 gives 0.12. X2 = 80/400 = 0.20 gives 0.28. X3 = 32/400 = 0.08 gives 0.264. X4 = 240/160 = 1.5 gives 0.90. X5 = 480/400 = 1.2 gives 1.20. Sum = 0.12 + 0.28 + 0.264 + 0.90 + 1.20 = 2.764. Option 3.164 wrongly adds 0.4 as if X5 were 1.6.
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