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CMA Final · Strategic Performance Management and Business Valuation · Corporate Failure

Under the original Altman Z-score model for public manufacturing firms, a company with a Z-score of 1.5 would be classified as:

A Z-score of 1.5 is below the 1.81 cut-off, so the company falls in the distress zone and has a high probability of failure. The grey zone runs from 1.81 to 2.99 and the safe zone is above 2.99. The model gives probabilities, not certainties.

  1. AIn the distress zone, with a high probability of failureCorrect
  2. BIn the safe zone
  3. CIn the grey zone, with uncertain outcome
  4. DCertain to be insolvent within one month

Explanation

The conventional cut-offs are below 1.81 for the distress zone, 1.81 to 2.99 for the grey zone, and above 2.99 for the safe zone. A score of 1.5 is below 1.81, so the firm is in the distress zone. It signals a high probability of failure, not a certain outcome at a fixed date.

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