Assuming that an investor is concerned about his money invested in AMN Bank due to recent collapse of many banks. Therefore, he is considering withdrawing all his money from AAA Bank and investing in a new bank, AZM Bank. As an expert, provide suggestions to the investor so that he can make an informed decision. The following are the financial information of AMN Bank and AZM Bank.
Z-score = 1.2X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0 X5
| AMN BANK | AZM BANK | |
| Sales | 4,500 | 2,000 |
| Earning Before Interest and Tax | 200 | -120 |
| Current Assets | 1,800 | 800 |
| Total Assets | 2,700 | 1,200 |
| Current Liabilities | 1,500 | 750 |
| Total Liabilities | 1,700 | 1,000 |
| Retained Earnings | 800 | -25 |
| Market Value of Equity | 1600 | 80 |
(a)Explain “Alman’s Z-score’ and the meaning of a score of less than 1.8.
(b)Calculate the Z-score ratio of AMN Bank and AZM Bank.
(c)Explain on the result obtained from Altman’s Z-score in predicting banks failure.
