Altman Z-Score is one of the most widely used financial ratios that have the tendency to predict the bankruptcy of an organization depending upon different ratios and financial information (Barrow, 2011).
- There are five different ratios which have been taken into consideration by Altman in the computation of formula of Z-Score. The ratios are mentioned below
Working Capital / Total Assets
Retained Earnings / Total Assets
Earnings before Interest and Taxes (EBIT) / Total Assets
Total Equity / Total Liabilities
Sales / Total Assets
- All of these ratios which have been chosen for the bankruptcy indication are essential to provide solid and concrete information related to the financial health of an organization, as 4 out 5 ratios could analyze how effective the total assets of the company are as far as increasing the sales of the company (Bierman and Smidt, 2012)
- These ratios could be internal and external benchmarking, in which companies can analyzed how effectively the operating assets are working for the company and in relation how effectively it is utilizing by the external companies in particular (Deep, 2012).
Financial Derivatives is an important and widely used strategy in the financial institutions, used by the companies and banks to mitigate their risk and increase their profit and returns. Derivatives give a chance to the party to buy or sell an underlying asset at a later date.
- The Farmer Jones should wait and hold the Bushels for a year and should sell it after an year, or he has the option to have a derivative contract in which Jones have to sell 80,000 Bushels for 8 $ per Bushels next year
- If 10% of the Bushels storage spoils, then it still be effective for Jones in the future, as still Jones have 79,200 Bushels which can be sell out next year at a given price of 8$.
- The prediction of Jones may be wrong and the price of Bushels can be decreased. Apart from this, it may happen that the rate of spoil of wheat may increased by 10%.
Retirement Planning
- Future Value = $ 250,000, Rate = 6%, Year = 30
Future Value of Annuity
250,000 = C * [(1+6%) ^30 – 1 / 6%)]
250,000 = C * (79.05)
C = 250,000 / 79.05
C = $ 3,162
- Present Value
= Future Value / (1+6%) ^20
= 250,000 / (1+6%) ^20
Present Value that can be drawn = 77,951
- There are certain factors that may contain and envisaged by an individual while evaluating the same
- Change in the interest rate which has been predicted
- It might happen that the individual might not able to accumulate the funds for the given time period
- Taxation might applied
- Capital Gain Tax may rise over the profit
- Bank Service Charges may vary
- Stock Price of Wall-Mart is $ 75.28, while price of Apple is 93.52 $
- We have total of 480 Shares, (400 of Wall-Mart and 80 of Apple)
Weights of Microsoft Inc = (400/480) = 83.3%
Weights of Apple Inc = 16.66%
- Expected Return would be like this
= (83.3%) * (10%) + (16.6%) * (21%)
Portfolio Return = 8.33% + 3.5 = 11.83%
- The factors are
- Financial Competitiveness of the company of which buying the Bonds
- Current Prevailing interest rate in the country
- Current rate of Bonds of similar companies
- Future consequences of the bonds purchased
References
Barrow, C. (2011). Practical financial management. 1st ed. London: Kogan Page.
Bierman, J. and Smidt, S. (2012). The Capital Budgeting Decision, Ninth Edition. 1st ed. Hoboken: Taylor and Francis.
Brigham, E. and Daves, P. (2009). Study guide for Brigham/Daves' intermediate financial management. 1st ed. [Cincinnati, Ohio]: South-Western Pub.
Deep, K. (2012). Proceedings of the International Conference on Soft Computing for Problem Solving (SocProS 2011) December 20-22, 2011. 1st ed. New Delhi: Springer
