Problem 516 Delta Air Lines IncComputing
Problem 5.16 – Delta Air Lines, Inc.
Computing and Interpreting Risk and Bankruptcy Prediction Ratios for a Firm That
Declared Bankruptcy.
a. (1) Current Ratio:
2000: $3,205/$5,245 = 0.61
2001: $3,567/$6,403 = 0.56
2002: $3,902/$6,455 = 0.60
2003: $4,550/$6,157 = 0.74
2004: $3,606/$5,941 = 0.61
(2) Operating Cash Flow to Current Liabilities Ratio:
2001: $236/0.5($5,245 + $6,403) = 0.041
2002: $225/0.5($6,403 + $6,455) = 0.035
2003: $142/0.5($6,455 + $6,157) = 0.023
2004: $(1,123)/0.5($6,157 + $5,941) = (0.186)
(3) Liabilities to Assets Ratio:
2000: $16,354/$21,931 = 0.746
2001: $19,581/$23,605 = 0.830
2002: $23,563/$24,720 = 0.953
2003: $26,323/$25,939 = 1.015
2004: $27,320/$21,801 = 1.253
(4) Long-Term Debt to Long-Term Capital Ratio:
2000: $5,797/($5,797 + $5,577) = 0.510
2001: $7,781/($7,781 + $4,024) = 0.659
2002: $9,576/($9,576 + $1,157) = 0.892
2003: $11,040/($11,040 – $384) = 1.036
2004: $12,507/($12,507 – $5,519) = 1.790
(5) Operating Cash Flow to Total Liabilities Ratio:
2001: $236/0.5($16,354 + $19,581) = 0.013
2002: $225/0.5($19,581 + $23,563) = 0.010
2003: $142/0.5($23,563 + $26,323) = 0.006
2004: $(1,123)/0.5($26,323 + $27,320) = (0.042)
(6) Interest Coverage Ratio:
2000: $1,829/$380 = 4.8
2001 to 2004: The interest coverage ratio is negative and, therefore, is not covered. b. Altman’s Z-Score
2000
Working Capital/Assets: 1.2[($3,205 – $5,245)/$21,931] ..................... (0.112)
Retained Earnings/Assets: 1.4($4,176/$21,931).................................... 0.267
EBIT/Assets: 3.3($1,829/$21,931) ........................................................ 0.275
Mkt. Value Equity/Liabilities: 0.6[(123 × $50.185)/$16,354] .............. 0.226
Sales/Assets: 1.0($15,657/$21,931)....................................................... 0.714
Z-Score ................................................................................................ 1.370
Probability of Bankruptcy ...................................................................... 35.5%
2001
Computing and Interpreting Risk and Bankruptcy Prediction Ratios for a Firm That
Declared Bankruptcy.
a. (1) Current Ratio:
2000: $3,205/$5,245 = 0.61
2001: $3,567/$6,403 = 0.56
2002: $3,902/$6,455 = 0.60
2003: $4,550/$6,157 = 0.74
2004: $3,606/$5,941 = 0.61
(2) Operating Cash Flow to Current Liabilities Ratio:
2001: $236/0.5($5,245 + $6,403) = 0.041
2002: $225/0.5($6,403 + $6,455) = 0.035
2003: $142/0.5($6,455 + $6,157) = 0.023
2004: $(1,123)/0.5($6,157 + $5,941) = (0.186)
(3) Liabilities to Assets Ratio:
2000: $16,354/$21,931 = 0.746
2001: $19,581/$23,605 = 0.830
2002: $23,563/$24,720 = 0.953
2003: $26,323/$25,939 = 1.015
2004: $27,320/$21,801 = 1.253
(4) Long-Term Debt to Long-Term Capital Ratio:
2000: $5,797/($5,797 + $5,577) = 0.510
2001: $7,781/($7,781 + $4,024) = 0.659
2002: $9,576/($9,576 + $1,157) = 0.892
2003: $11,040/($11,040 – $384) = 1.036
2004: $12,507/($12,507 – $5,519) = 1.790
(5) Operating Cash Flow to Total Liabilities Ratio:
2001: $236/0.5($16,354 + $19,581) = 0.013
2002: $225/0.5($19,581 + $23,563) = 0.010
2003: $142/0.5($23,563 + $26,323) = 0.006
2004: $(1,123)/0.5($26,323 + $27,320) = (0.042)
(6) Interest Coverage Ratio:
2000: $1,829/$380 = 4.8
2001 to 2004: The interest coverage ratio is negative and, therefore, is not covered. b. Altman’s Z-Score
2000
Working Capital/Assets: 1.2[($3,205 – $5,245)/$21,931] ..................... (0.112)
Retained Earnings/Assets: 1.4($4,176/$21,931).................................... 0.267
EBIT/Assets: 3.3($1,829/$21,931) ........................................................ 0.275
Mkt. Value Equity/Liabilities: 0.6[(123 × $50.185)/$16,354] .............. 0.226
Sales/Assets: 1.0($15,657/$21,931)....................................................... 0.714
Z-Score ................................................................................................ 1.370
Probability of Bankruptcy ...................................................................... 35.5%
2001