Project "Z"Score Model


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Project "Z"Score Model

  2. 2. “Z” Score model It’s the model for Predicting Bankruptcy Developed by Edward I Altman in 1968 “Z” Score is a linear combination of five common business Ratios The “Z” Score formula was as follows Z = 0.012 A + 0.014 B + 0.033 C + 0.006 D +0.999 E, A = Working Capital / Total Assets Measures Liquid Assets in relation to the size of the company B = Reserve & Surplus / Total Assets Measures Profitability that reflects the company’s age and earning power
  3. 3. Cont…. C = EBIT / Total Assets Measures operating efficiency apart from tax and leveraging factors. it recognizes operating earnings as being important to long term viability D = Equity / Total Debt Adds market dimension that can show up security price fluctuation as a possible red flag. E = Sales or Income / Total Assets Standard measure for total asset Turnover
  4. 4. Altman GuidelinesSituations “Z” Score Zones Remarks I Below 1.8 Bankruptcy Its failure is certain and extremely likely and would occur probably within two years II Between 1.8 and Healthy Financial viability 2.99 is considered to be Healthy III 3.0 and above Too Healthy Its financial health is viable and not to fall
  5. 5. SPRINGATE MODEL ( 1978 ) Step wise multiple Discriminate analysis Z = 1.03 A + 3.07 B + 0.66 C + 0.4 D A = Working Capital / Total Assets B = Net Profit Before Interest and taxes / Total assets C = Net Profit Before Taxes / Current Liabilities D = Sales / Total Assets “Z” Less than 0.862; then the firm is classified as “ Failed”
  6. 6. Industry profile The organized sector of the Confectionery market is estimated to be about Rs 1400 crore Largest among the food processing Industry Four categories of Confectionery in the organized sector – chocolate Confectionery, sugar Confectionery, gum and cereal bars Candico is the only Indian Confectionery company with production facilities overseas LOTTE, Cadbury, Wrigley’s and Perfetti etc.. Growing at a pace of 9 % per annum.
  7. 7. Company profile Lotte India Corporation, Incorporated in 1954. Lotte Confectionery is the first company in the Lotte family of companies founded by Shin Kyuk-ho a part of South Korea based group They engaged in manufacturing and marketing toffees, chewing gum, bubble gum, and sugar boiled Confectionery On July 2010 Inaugurated a new facility at Nemam village near poonamallee invested around $70 million (around Rs 322 crore) in the facility.
  8. 8. Objectives of the study Primary objective To predict the financial health and viability of the company using “Z” Score model Secondary objective To analyze the financial condition of Lotte India Corporation Ltd To know the efficiency in financial operations of the company. To offer suitable suggestions.
  9. 9. Need and Scope for the study The primary need of the study is to analyze the financial health of the company and to identify the signs of financial distress and thereby avoid the Bankruptcy The scope of the study is limited to 5 years financial performance only this study help company improve the financial health and performance of the business
  10. 10. Research methodology and designDesk research Design is used to analysis the financial health of the companyMeaning of Desk research Research using published sources, and/or the clients own internal sources, carried out prior to a research project. which can include company financial details, analysts reports, market statistics or comments and information about the issues in a marketplace.
  11. 11. Research methodology and design Data collection (A) NATURE OF DATA The data collection is based on secondary data. (B) SOURCES OF DATA The secondary data for analysis are taken from the company ANNUAL REPORT
  12. 12. Findings The company’s financial health is sound during the study period, the significant findings of the study are given below 1. Working capital to total assets ratios of the company shows a highly fluctuating during the study period this clearly shows the company liquidity position is very fluctuating during the study period 2. Reserves and surplus to total assets ratios of the company shows an Increasing trend in the study period which indicates that the company has financed capital expenditures through Reserves and surplus during the period of study
  13. 13. Findings 3. EBIT to total assets ratios of the company shows a highly fluctuating during the study period this clearly shows the company operating earning is not favorable during the study period 4. The Equity to total Debt ratios of the company shows a highly fluctuating during the study period this clearly shows the company depended on equity capital rather than debt capital during the study period 5. The Income to total assets ratios of the company shows a highly fluctuating during the study period this clearly shows the company Income is not satisfactory over the study period
  14. 14. Conclusions The final conclusion of the study is the financial health of Lotte India corporation Ltd is sound during the period of study 2007-2011 and the company does not face the Bankruptcy in the future