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Bankruptcy prediction:

Calculate total Z score and if:

• Distress Zone (Z < 1.1): Here, the distress zone is held for companies with a
Z Score value of less than 1.1. Such companies pose a large risk of heading
towards bankruptcy in the next couple of years or show a poor financial health

• Grey Zone (2.6 > Z > 1.1): The grey zone too is lowered here to values of Z
between 2.6 and 1.1. Such companies are considered to be of moderate risk of
bankruptcy in both non-manufacturing and companies in emerging markets

• Safe Zone (Z > 2.6): Here again the values diverge significantly from the
previous formulas with the ‘Safe Zone’ now being assigned to companies with
a Z Score over 2.6. Such companies are less likely to head towards bankruptcy
and will be considered to be in good financial health

Third: Zmjiewski-model

The Zmjewski model is a statistical model is a formula for determining
whether a company, , is headed for bankruptcy. Using financial ratios that
measures firm performance, leverage, and liquidity

Zmjiweski Score = - 4.3 - 4.5 X1 + 5.7 X2 - .004 X3

Where:

• X1 = net income/total assets;
• X2 = total debt/total assets;
• X3 = current assets/current liabilities;

Bankruptcy detection:

Calculate total Zmj score and if:

• ZMJ Score < 0.5 represent a higher probability of default.
• ZMJ Score > 0.5 represent a Lowe probability of default.

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‫جميع الحقوق محفوظة ـ الإعتداء على حق المؤلف بالنسخ أو الطباعة يعرض فاعله للمسائلة القانونية‬