One of the methods to predict whether your company has the potential to decline or fail is using the Z-Score method. The formula is as follows:
Z-score method,
If Z<1.8, the firm is classified as at a high likelihood of failure. Conversely, a score above 3.0 indicates that that bankruptcy is unlikely.
Z = 1.2A + 1.4B + 3.3C + 0.999E
A = Working Capital/Total Assets
B = Retained Earning/Total Assets
C = Earnings before Interest and Taxes/Total Assets
D = Market Value of Equity/Book Value of Total Debt
E = Sales/Total Assets
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