The formula to calculate the Altman Z-Score is:
\[ \text{Altman Z-Score} = 1.2 \times \frac{\text{NWC}}{\text{TA}} + 1.4 \times \frac{\text{RE}}{\text{TA}} + 3.3 \times \frac{\text{EBIT}}{\text{TA}} + 0.6 \times \frac{\text{MVE}}{\text{TL}} + 1.0 \times \frac{\text{Sales}}{\text{TA}} \]
Where:
The Altman Z-Score is a measure of the financial health of a company. It helps predict the probability of a company going bankrupt within the next two years. A higher Z-Score indicates a lower risk of bankruptcy.
Let's assume the following:
To calculate the NWC/TA Ratio:
\[ \frac{\text{NWC}}{\text{TA}} = \frac{200,000 + 300,000 - 100,000}{50,000,000} = \frac{400,000}{50,000,000} = 0.008 \]
To calculate the RE/TA Ratio:
\[ \frac{\text{RE}}{\text{TA}} = \frac{1,000,000 - 0.50 \times 1,000,000}{50,000,000} = \frac{500,000}{50,000,000} = 0.01 \]
To calculate the EBIT/TA Ratio:
\[ \frac{\text{EBIT}}{\text{TA}} = \frac{4,000,000}{50,000,000} = 0.08 \]
To calculate the MVE/TL Ratio:
\[ \frac{\text{MVE}}{\text{TL}} = \frac{20 \times 1,000,000}{20,000,000} = \frac{20,000,000}{20,000,000} = 1.0 \]
To calculate the Sales/TA Ratio:
\[ \frac{\text{Sales}}{\text{TA}} = \frac{10,000,000}{50,000,000} = 0.2 \]
Finally, to calculate the Altman Z-Score:
\[ \text{Altman Z-Score} = 1.2 \times 0.008 + 1.4 \times 0.01 + 3.3 \times 0.08 + 0.6 \times 1 + 1.0 \times 0.2 = 1.0876 \]
Therefore, the Altman Z-Score is approximately 1.0876.