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3) A friend has approached you with the following financial information about three companies he invested in, all
S myStanState P( X Bb Documents & C X Bb Bitsch et al.20( X Bitsch et al.20( X M Inbox - nruiz4( X M Inbox (1,613) - xCase Study 2 ( X . Reef - Question XHomework Hel X+Cdocs.google.com/document/d/10T_ze9zSuPm-4tJmrfzIZH39GzHO5EMa2hd_02AatAY/edit#NOApps YouTube Maps M Gmail My Drive - Google...$ myStanState Portal h Hulu @ Pearson Sign In D ReefCase Study 2 (1)a ShareFile Edit View Insert Format Tools Add-ons HelpNAll changes saved in Drive100%Normal textTimes New...12Editing1 2 '1 1 73) A friend has approached you with the following financial information about three companiesOutlinehe invested in, all in the same industry. He is trying to determine whether to divest from all or8any of these companies for fear of losing his investment. Using the Altman Z score, provide himwith a good explanation about the financial status of each of the companies so that he can make aCase Study Analysis 2:good decision and not lose his money to bankruptcy. Show your work and explain theimplication of the score of each company (25 Points).Company ACompany BCompany CTotal Assets$ 8,000,000.00$ 11,000,000.00$5,000,000.00Working Capital$5,000,000.00$50.000.001,500,000.00Retained Earnings$1,000,000.00$15,000.0020,000.00Operating Income$ 10,000,000.00$150,000.00$2,100,000.00Market Value ofEquity$2,000,000.00$100,000.00400,000.00Total Liabilities$500,000.00$ 10,500,000.007,000,000.00Total Sales$ 15,000,000.00$ 2,100,000.00$4,600,000.00Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0xsX1 = 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 financialcondition)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 ofBankruptcy in the next couple years)
