Risk Management
Sector:
Automobile and parts
5 companies:
Altman Z score is calculated for the following companies to check their default risk classification for 3 years that are 2009, 2010 and 2011. * Agriautos industries Ltd * Atlas battery Ltd * Honda atlas cars Ltd * Exide Pakistan Ltd * Pak Suzuki motors Ltd
Altman’s Z-Score model:
Altman’s Z score model is used to classify the borrower’s default risk. This classification depends on the values of various ratios of the borrower which are given specific weights. The model and ratios are as following:
Z=1.2x1+1.4x2+3.3x3+0.6x4+1.0x5
Where: x1=working capitaltotal assets x2=Retain EarningsTotal Assets x3=Earning before interest and taxTotal assets x4=Market Value of Equity Book value of long term debts x5=salesTotal Assets
Classification according to Z-Score model:
Class | Condition | High default risk | if Z<1.81 | Intermediate risk | if 1.81<Z<2.99 | Low default risk | if Z >2.99 |
1. Altman’s Z-Score of Agriautos industries ltd:
For 2009
Z=1.2x1+1.4x2+3.3x3+0.6x4+1.0x5
Z=1.20.550+1.40.15+3.30.26+0.60.000018+1.01.44
Z=0.66+0.21+0.85+0.000011+1.44
Z=3.16
Working: x1=working capitaltotal assets x1=1,114,661195,987 x1=0.550 x2=Retained EarningsTotal Assets x2=249,6021,671,491 x2=0.15 x3=Earning before interest and taxTotal assets x3=440,3101,671,491 x3=0.26 x4=Market Value of Equity Book value of long term debts x4=Log (940,032) 33,336 x4=0.000018 x5=salesTotal Assets x5=2,413,3091,671,491 x5=1.44
For 2010
Z=1.2x1+1.4x2+3.3x3+0.6x4+1.0x5
Z=1.20.697+1.40.15+3.30.35+0.60.000217+1.01.82
Z=0.836+0.21+1.155+0.000130+1.82
Z=4.02
Working: x1=working capitaltotal assets x1=1,498,7082,149,465 x1=0.697 x2=Retained EarningsTotal Assets x2=337,2852,149,465 x2=0.15 x3=Earning before interest and taxTotal assets x3=746,9302,149,465 x3=0.35 x4=Market Value of Equity Book value of long term debts
Automobile and parts
5 companies:
Altman Z score is calculated for the following companies to check their default risk classification for 3 years that are 2009, 2010 and 2011. * Agriautos industries Ltd * Atlas battery Ltd * Honda atlas cars Ltd * Exide Pakistan Ltd * Pak Suzuki motors Ltd
Altman’s Z-Score model:
Altman’s Z score model is used to classify the borrower’s default risk. This classification depends on the values of various ratios of the borrower which are given specific weights. The model and ratios are as following:
Z=1.2x1+1.4x2+3.3x3+0.6x4+1.0x5
Where: x1=working capitaltotal assets x2=Retain EarningsTotal Assets x3=Earning before interest and taxTotal assets x4=Market Value of Equity Book value of long term debts x5=salesTotal Assets
Classification according to Z-Score model:
Class | Condition | High default risk | if Z<1.81 | Intermediate risk | if 1.81<Z<2.99 | Low default risk | if Z >2.99 |
1. Altman’s Z-Score of Agriautos industries ltd:
For 2009
Z=1.2x1+1.4x2+3.3x3+0.6x4+1.0x5
Z=1.20.550+1.40.15+3.30.26+0.60.000018+1.01.44
Z=0.66+0.21+0.85+0.000011+1.44
Z=3.16
Working: x1=working capitaltotal assets x1=1,114,661195,987 x1=0.550 x2=Retained EarningsTotal Assets x2=249,6021,671,491 x2=0.15 x3=Earning before interest and taxTotal assets x3=440,3101,671,491 x3=0.26 x4=Market Value of Equity Book value of long term debts x4=Log (940,032) 33,336 x4=0.000018 x5=salesTotal Assets x5=2,413,3091,671,491 x5=1.44
For 2010
Z=1.2x1+1.4x2+3.3x3+0.6x4+1.0x5
Z=1.20.697+1.40.15+3.30.35+0.60.000217+1.01.82
Z=0.836+0.21+1.155+0.000130+1.82
Z=4.02
Working: x1=working capitaltotal assets x1=1,498,7082,149,465 x1=0.697 x2=Retained EarningsTotal Assets x2=337,2852,149,465 x2=0.15 x3=Earning before interest and taxTotal assets x3=746,9302,149,465 x3=0.35 x4=Market Value of Equity Book value of long term debts