How to predict bankruptcy with ZSCORE

1. The Z-SCORE :
How to use the Annual Report to
predict a bankruptcy ?
1/ Annual Report
2/ Balance Sheet
3/ Z-SCORE Application

2. 1/ Annual Report
Definition : a document released by companies at the end of the
fiscal year which includes everything an investor needs to
know about the business.
Contains : Letter from the Chairman
The company ‘s philosophy
P&L, Balance Sheet, Income Statement
Auditors’ letter

3. 2/ Balance Sheet
Definition : A financial statement that summarizes a company's
assets, liabilities and shareholders' equity at a specific point in
time.
Assets = Liabilities + Shareholders' Equity
Purpose : It gives investors an idea as to what the company owns
and owes, as well as the amount invested by the
shareholders.

7. 3/ Z-SCORE
Definition : The Altman Z-Score is a statistical tool used to
measure the likelihood that a company will go bankrupt. the
lower a company's Z-score, the higher the chance of
bankruptcy.
Risk Zone 1.8 < Grey Zone < Safe Zone 3.0
Using : Total assets, Total current assets, Total Liabilities, Total current liabilities, Retained
Earnings, Pretaxe Income, Interest expense, Revenue, Market Capitalization
Datas are from Audited Financial Statements (2013 3Q)

8. Z-score =
1.2*(A) + 1.4*(B) + 3.3*(C) + 0.6*(D) +1.0*(E)
A = Working Capital / Total Assets
= (Total Current Assets - Total Current Liabilities) / Total Assets
= (103 359 – 50 811) / 197 787
= 0.2657
(a measure of the net liquid assets of the firm relative to the total Assets)
B = Retained Earnings / Total Assets
=97 228 / 144 978
= 0.6706
(a measure of the leverage of a firm)

9. Z-score =
1.2*(A) + 1.4*(B) + 3.3*(C) + 0.6*(D) +1.0*(E)
C = Earnings Before Interest and Taxes / Total Assets
=(Pretax Income + Interest Expense) / Total Assets
= (25 921+ -208) / 144 978
= 0.1774
(a measure of the true productivity of the firm’s assets)
D = Market Capitalization / Total Liabilities
= 124 151 / 45 646
= 2.7199
(how much the company's market value would decline before liabilities exceed
assets)
E = Revenue / Total Assets
= 155 359 / 144 978
= 1.0716
(a measure of sales generated by one asset)

10. Conclusion
Z =1.2 * A + 1.4 * B + 3.3 * C + 0.6 * D + 1.0 * E
= 1.2 * 0.2657 + 1.4 * 0.6706 + 3.3 * 0.1726 + 0.6 * 2.7324 + 1.0 * 1.0427
= 4.51 > 3.0
The likelihood that Samsung will go bankrupt is very low.
the Z-score: - is not perfect, calculated and interpreted with care.
- gives simpler conclusion than the mass of ratios.
- is a gauge of relative financial health not a predictor.
- if the score indicates a problem, it's a good idea to conduct a more
detailed analysis.

11. Sources
http://www.investopedia.com
http://beginnersinvest.com
http://www.samsung.com