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Asked by Oguche Agnebb on Jun 08, 2024

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The Z-score model combines five financial ratios in a precise way to estimate a company's default risk.

Z-score Model

The Z-score model is a financial model that predicts the probability of bankruptcy of a firm based on various balance sheet figures and market measures.

Financial Ratios

Quantitative measures derived from financial statement data used to evaluate a company's financial performance, financial health, and to compare it with other businesses or the industry average.

Default Risk

The possibility that a borrower will be unable to make the required payments on their debt obligations.

  • Implement understanding of solvency, liquidity, and credit risk within financial examinations.
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Dionna ManningJun 15, 2024
Final Answer :
True
Explanation :
The Z-score model is a formula that combines five financial ratios - working capital/total assets, retained earnings/total assets, earnings before interest and taxes/total assets, market value of equity/book value of total liabilities, and sales/total assets. The resulting score is used to estimate a company's likelihood of default or bankruptcy.

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