Premium Essay

Altman Fsa

In:

Submitted By zwang80
Words 4731
Pages 19
I. Assessment of Financial Distress
A.

Working Capital / Total Assets
Retained Earnings / Total Assets
EBIT / Total Assets
Market Value of Equity / Book Value of Debt
Sales / Total Assets
In 2010,

In 2009,

B.
Comment: commonly, a Altman z-score above 2.99 indicates low probability of bankruptcy. Our result shows that the Altman z-score of Best Buy in 2010 and 2009 are both far above 2.99, which means that Best Buy’s probabilities of bankruptcy in 2008 and 2009 are both very low.

II. Analysis of Historical Operating Performance
A.
EBIT & EBITDA Calculation: | 2010 | 2009 | Operating Income | 2235 | 1870 | + Investment Income and other | 54 | 35 | + Investment Impairment | 0 | (111) | EBIT | 2289 | 1794 | + Depreciation & Amortization | 926 | 793 | + Restructuring Charges | 52 | 78 | + Asset Impairment | 4 | 177 | = EBITDA | 3271 | 2842 | Year-to-year trend analysis: | 2010 | 2009 | $ Change | % Change | Revenues | 49694 | 45051 | 4643 | 10.31% | Gross Profit | 12160 | 10998 | 1162 | 10.57% | Operating Income | 2235 | 1870 | 365 | 19.52% | EBIT | 2289 | 1794 | 495 | 27.59% | Interest Expense | (94) | (94) | 0 | 0.00% | Net Income | 1317 | 1003 | 314 | 31.31% | EBITDA | 3271 | 2842 | 429 | 15.10% |

B.

| 2010 | 2009 | Gross Margin | 24.47% | 24.41% | Operating Margin | 4.50% | 4.15% | EBIT Margin | 4.61% | 3.98% | Interest Coverage | 24.35X | 19.09X | Net Margin | 2.65% | 2.23% | EBITDA Margin | 6.58% | 6.31% |

Detailed calculation:
In 2010
Gross Margin = Gross Profit / Revenues = 12160 / 49694 = 0.24
Operating Margin = Operating Income / Revenues = 2235 / 49694 = 0.04
EBIT Margin = EBIT / Revenues = 2289 / 49694 = 0.05
Interest Coverage = EBIT / Interest Expense = 2289 / 94 = 24.35X
Net Margin = Net Income / Revenues = 1317 / 49694

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