Compute the value of altmans z-score for delta air lines

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Reference no: EM13901653

COMPUTING AND INTERPRETING RISK AND BANKRUPTCY PREDICTION RATIOS FOR A FIRM THAT DECLARED BANKRUPTCY. Delta Air Lines is one of the largest airlines in the United States. It has operated on the verge of bankruptcy for several years. Exhibit 5.18 presents selected financial data for Delta Air Lines for each of the five years ending December 31, 2000, to December 31, 2004. Delta Air Lines filed for bankruptcy on September 14, 2005. We recommend that you create an Excel spreadsheet to compute the values of the ratios and the Altman's Z-score in Parts a and b, respectively.

Financial Data for Delta Air Lines
(amounts in millions except per share amounts) (Problem 5.15)

Financial Data for Delta Air Lines
(amounts in millions except per share amounts) (Problem 1)

Year EndedDecember 31:

2004

2003

2002

2001

2000

Sales

Net Income (Loss) before Interest and Taxes

$15,002

 

$(3,168)

$14,087

 

$   (432)

$13,866

 

$(1,337)

$13,879

 

$(1,365)

$15,657

 

$  1,829

Interest Expense

$     824

$     757

$     665

$     499

$     380

Net Income (Loss)

$(5,198)

$   (773)

$(1,272)

$(1,216)

$     828

Current Assets

$  3,606

$  4,550

$  3,902

$  3,567

$  3,205

Total Assets

$21,801

$25,939

$24,720

$23,605

$21,931

Current Liabilities

$  5,941

$  6,157

$  6,455

$  6,403

$  5,245

Long-Term Debt

$12,507

$11,040

$  9,576

$  7,781

$  5,797

Total Liabilities

Retained Earnings (Deficit)

$27,320

 

$ (4,373)

$26,323

 

$     844

$23,563

 

$  1,639

$19,581

 

$  2,930

$16,354

 

$  4,176

Shareholders' Equity

Cash Flow Provided by Operations

$ (5,519)

 

$(1,123)

$   (384)

 

$     142

$  1,157

 

$     225

$  4,024

 

$     236

$  5,577

 

$  2,898

Outstanding

139.8

123.5

123.4

123.2

123.0

Market Price per Share

$    7.48

$   11.81

$  12.10

$  29.26

$  50.18

Common Shares

Required

a. Compute the value of each the following risk ratios.

(1) Current Ratio (at the end of 2000-2004)

(2) Operating Cash Flow to Current Liabilities Ratio (for 2001-2004)

(3) Liabilities to Assets Ratio (at the end of 2000-2004)

(4) Long-Term Debt to Long-Term Capital Ratio (at the end of 2000-2004)

(5) Operating Cash Flow to Total Liabilities Ratio (for 2001-2004)

(6) Interest Coverage Ratio (for 2000-2004)

b. Compute the value of Altman's Z-score for Delta Air Lines for each year from 2000-2004.

c. Using the analyses in Parts a and b, discuss the most important factors that signaled the likelihood of bankruptcy of Delta Air Lines in 2005.

Reference no: EM13901653

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