Taffler Zscore 1014D4

1. **State the problem:** Calculate the Z-score for MCC for the last two accounting periods (1990 and 1991) using the Taffler formula. 2. **Taffler Z-score formula:** $$Z = \frac{1.2 \times (\text{Working Capital} / \text{Total Assets}) + 1.4 \times (\text{Retained Earnings} / \text{Total Assets}) + 3.3 \times (\text{EBIT} / \text{Total Assets}) + 0.6 \times (\text{Market Value of Equity} / \text{Total Liabilities}) + 1.0 \times (\text{Sales} / \text{Total Assets})}{1}$$ 3. **Identify variables for 1990 and 1991:** - Working Capital = Current Assets - Current Liabilities - Total Assets from balance sheet - Retained Earnings = Retained Profit - EBIT = Earnings Before Interest & Tax - Market Value of Equity = Year end share price (pence) \times Adjusted number of shares (millions) \times 0.01 (to convert pence to pounds) - Total Liabilities = Non-current liabilities + Long & medium loans + Short term loans - Sales from income statement 4. **Calculate for 1990:** - Current Assets = 627.8 - Current Liabilities = 654.2 - Working Capital = 627.8 - 654.2 = -26.4 - Total Assets = 45184.9 (likely a typo, assume 4518.49 for realistic scale) - Retained Earnings = 5.3 - EBIT = 388.2 - Year end share price = 646.000 pence - Adjusted shares = 189 million - Market Value of Equity = 646.000 \times 189 \times 0.01 = 122.094 million - Total Liabilities = 366.6 + 1670.8 + 505.5 = 2542.9 - Sales = 1242.1 Calculate ratios: $$\frac{Working\ Capital}{Total\ Assets} = \frac{-26.4}{4518.49} = -0.00584$$ $$\frac{Retained\ Earnings}{Total\ Assets} = \frac{5.3}{4518.49} = 0.00117$$ $$\frac{EBIT}{Total\ Assets} = \frac{388.2}{4518.49} = 0.0859$$ $$\frac{Market\ Value\ of\ Equity}{Total\ Liabilities} = \frac{122.094}{2542.9} = 0.0480$$ $$\frac{Sales}{Total\ Assets} = \frac{1242.1}{4518.49} = 0.2749$$ Calculate Z: $$Z = 1.2 \times (-0.00584) + 1.4 \times 0.00117 + 3.3 \times 0.0859 + 0.6 \times 0.0480 + 1.0 \times 0.2749$$ $$Z = -0.0070 + 0.0016 + 0.2835 + 0.0288 + 0.2749 = 0.5818$$ 5. **Calculate for 1991:** - Current Assets = 633.2 - Current Liabilities = 654.2 (assuming same as 1990 as 1991 value missing) - Working Capital = 633.2 - 654.2 = -21.0 - Total Assets = 3616.6 - Retained Earnings = -46.2 - EBIT = 341.6 - Year end share price = 649.200 pence - Adjusted shares = 173 million - Market Value of Equity = 649.200 \times 173 \times 0.01 = 112.3116 million - Total Liabilities = 305.8 + 1438.0 + 350.9 = 2094.7 - Sales = 996.9 Calculate ratios: $$\frac{Working\ Capital}{Total\ Assets} = \frac{-21.0}{3616.6} = -0.00581$$ $$\frac{Retained\ Earnings}{Total\ Assets} = \frac{-46.2}{3616.6} = -0.01277$$ $$\frac{EBIT}{Total\ Assets} = \frac{341.6}{3616.6} = 0.0945$$ $$\frac{Market\ Value\ of\ Equity}{Total\ Liabilities} = \frac{112.3116}{2094.7} = 0.0536$$ $$\frac{Sales}{Total\ Assets} = \frac{996.9}{3616.6} = 0.2757$$ Calculate Z: $$Z = 1.2 \times (-0.00581) + 1.4 \times (-0.01277) + 3.3 \times 0.0945 + 0.6 \times 0.0536 + 1.0 \times 0.2757$$ $$Z = -0.0070 - 0.0179 + 0.3119 + 0.0322 + 0.2757 = 0.5950$$ 6. **Final answers:** - Z-score for 1990 = $0.582$ - Z-score for 1991 = $0.595$ These scores indicate the financial health of MCC for the last two accounting periods using the Taffler formula.