Altman’s Z-score does not consider which of the following ratios:

Altman’s Z-score does not consider which of the following ratios:
A . Market capitalization to debt
B . Sales to total assets
C . Net income to total assets
D . Working capital to total assets

View Answer

Answer: C

Explanation:

A computation of Altman’s Z-score considers the following ratios:

– Working capital to total assets

– Retained earnings to total assets

– EBIT to total assets

– Market cap to debt

– Sales to total assets

It does not consider Net Income to total assets, therefore Choice ‘c’ is the correct answer. This makes sense as net income is after interest and taxes, both of which are not relevant for considering the cash flows for debt servicing.