Re: What, exactly, is Z-score?

[JAC1390@xxxxxxx]

	My understanding of Z-score is the following; No single financial measure-
return on equity, debt-equity ratio, etc.-alerts top management to an emerging
financial problem. Closeset to such a signal is the Z-score, developed by
Dr.Edward Altman, finance professor of the New York University. The Z-Score is
used for manufacturing companies to identify a deteriorating or an improving
financial condition when plotted over time.
	The formula:
Z = 1.2x1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
            X1= CURRENT ASSETS -CURRENT LIAB./ TOTAL ASSETS
            X2= RETAINED EARNINGS(FROM BAL SHEET) / TOTAL ASSETS
            X3= EARNINGS before INTEREST and TAXES / TOTAL ASSETS
            X4= MARKET VALUE OF EQUITY / TOTAL LIABILITIES
            X5= NET SALES / TOTAL ASSETS
To read the results:
The co. is financially healthy when Z is >3.0 
 The co. is financially ailing when Z equals <1.8 
 The situation is neutral if Z falls between 1.8 and 3.0.

Use the Z-Score internally to:
Track the co's performance with that of competitors
Set financial goals

Use externally to:
Perform credit analysis
Help determine an accounts receivable policy

JAC1390@xxxxxxx