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Compute the Altmans Z bankruptcy score for financial risk manager for this year. (8 points)

Altman's Z bankruptcy predictor: 3.3(Earnings before taxes / Total assets) + 1.2(Working capital / Total assets) +.6(Market value of equity / book value of debt) + 1.4(Retained earnings / Total assets) + 1(Revenue / Total assets).

Altman's Z bankruptcy predictor

=

3.3 ( ) + 1.2( ) + .6( ) + 1.4( ) + 1( )

= + + + +

=

Note:

Z

Z > 3.0 indicates low bankruptcy risk within 1 year

EXERCISE 1: Financial Ratios for Common Stockholders Comparative financial statements for Heritage Antiquing Services for the fiscal year ending December 31 appear on the following page. The company did not issue any new common or preferred stock during the year. A total of 800 thousand shares of common stock were outstanding. The interest rate on the bond payable was 14%, the income tax rate was 40%, and the dividend per share of common stock was $0.75. The market value of the company's common stock at the end of the year was $26. All of the company's sales are on account. Heritage Antiquing Services Comparative Balance Sheet (dollars in thousands) This Year Last Year $ 1,080 9,000 12,000 600 22,680 $ 1,210 6,500 10,600 500 18,810 9,000 36,800 45,800 $68,480 9,000 38,000 47,000 $65,810 Assets Current assets: Cash ......... Accounts receivable, net.. Inventory ............ Prepaid expenses ...... Total current assets ........ Property and equipment: Land ............. Buildings and equipment, net ..... Total property and equipment ........ Total assets ...... Liabilities and Stockholders' Equity Current liabilities: Accounts payable . . . . . . . . . . . . Accrued payables ......... Notes payable, short term . Total current liabilities .... Long-term liabilities: Bonds payable ......... Total liabilities ..... Stockholders' equity: Preferred stock Common stock .......... Additional paid-in capital .. Total paid-in capital ...... Retained earnings ...... Total stockholders' equity .... Total liabilities and stockholders' equity ..... $18,500 900 $17,400 700 100 18,200 19,400 8,000 27,400 8,000 26,200 1,000 2,000 4,000 7,000 34,080 41,080 $68,480 1,000 2,000 4,000 7,000 32,610 39,610 $65,810 Heritage Antiquing Services Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year $66,000 43,000 23,000 $64,000 42,000 22,000 Sales ................... Cost of goods sold ........ Gross margin ....... Selling and administrative expenses: Selling expenses Administrative expenses ........... Total selling and administrative expenses Net operating income ................ Interest expense ................. Net income before taxes....... Income taxes ........... Net income ........... Dividends to preferred stockholders ..... Net income remaining for common stockholders ........ Dividends to common stockholders .. Net income added to retained earnings .... Retained earnings, beginning of year ...... Retained earnings, end of year .......... 11,500 7,400 18,900 4,100 800 3,300 1,320 1,980 60 11,000 7,000 18,000 4,000 800 3,200 1,280 1,920 400 1,920 450 1,470 32,610 $34,080 1,520 450 1,070 31,540 $32.610

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