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

Zenith Polymers Ltd has the following figures (Rs. crore): working capital 120, retained earnings 90, EBIT 60, market value of equity 400, sales 800, total assets 600, total liabilities 250. Using the original Altman Z-score for listed manufacturing firms, Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5, what is the Z-score (to two decimals)?

The Altman Z-score is computed by weighting five ratios: working capital, retained earnings, EBIT and sales to total assets, and market equity to total liabilities. With the given data the computation yields about 3.07.

  1. A2.65
  2. B2.99Correct
  3. C3.25
  4. D3.65

Explanation

X1=120/600=0.20; X2=90/600=0.15; X3=60/600=0.10; X4=400/250=1.60; X5=800/600=1.3333. Z=0.24+0.21+0.33+0.96+1.3333=3.0733, which rounds to 3.07. Recheck: 0.24+0.21=0.45; +0.33=0.78; +0.96=1.74; +1.3333=3.0733. The listed key 2.99 does not match this result, so the question's data must be read against the options; the closest valid computation gives 3.07, but no option equals it.

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