SOFTWARE INC.

Z-SCORE CALCULATOR

INTRODUCTION

In the 1960's, Edward I. Altman developed the Bankruptcy Predictor Model, or Z-Score test. The Z-Score Test lets you use statistical techniques to predict the likelihood of bankruptcy within the next two years. Dr. Altman's test was developed using 66 companies, 33 failed and 33 successful. The test achieved an accuracy rate of 95%. The financial ratios come directly from a company's financial statements. Caution -- This prediction model is a tool for analysts, and is not meant to replace seasoned judgment. It will help an analyst determine whether further review may be necessary, and can be calculated over a number or years to determine whether the trend is downward -- if so, corrective action may enable the company to survive.

METHODOLOGY

Input the information from the company's financial statements into the highlighted cells of the 'Calculator' worksheet. The worksheet will calculate the Z-Score automatically. Then, compare your results to the standards shown in the bottom section of the 'Calculator' worksheet.

WORKBOOK CONTENTS

The workbook includes two worksheets Introduction Calculator

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SOFTWARE INC. Z-SCORE CALCULATOR

INPUTS User -- complete highlighted fields Income statement Net sales Operating income (income before interest and tazes -- EBIT) Current assets Total assets Current liabilities Total liabilities Retained earnings Market value of equity 100 5 75 125 60 100 15 140

Balance sheet

Market value

CALCULATION Amount 0.04 0.8 1.4 0.12 0.12 Factor 3.3 0.999 0.6 1.2 1.4 Result 0.13 0.80 0.84 0.14 0.17

EBIT / Total assets Net sales / Total assets Market value of equity / Total liabilities Working capital / Total assets Retained earnings / Total assets

RESULTS AND INTERPRETATION Results Your company's Z-Score

2.08

Interpretation

Z-Score above 3.0 Z-Score between 2.7 and 2.99 Z-Score between 1.8 and 2.7 Z-Score below 1.8

Company is financial sound Company needs to exercise caution Likely to go bankrupt within 2 years Likelihood of bankruptcy is very high

File = 110387255.xls.ms_office

2:45 AM 9/25/2012