8008 Exam Dumps | Altman's Z-score does not consider which of the following ratios:

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PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition
PRMIA.8008.v2021-08-28.q125
Question 51

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Question 51/125

Altman's Z-score does not consider which of the following ratios:

A. Market capitalization to debt

B. Sales to total assets

C. Net income to total assets

D. Working capital to total assets

Correct Answer: C

Explanation
A computation of Altman's Z-score considers the following ratios:
- Working capital to total assets
- Retained earnings to total assets
- EBIT to total assets
- Market cap to debt
- Sales to total assets
It does not consider Net Income to total assets, therefore Choice 'c' is the correct answer. This makes sense as net income is after interest and taxes, both of which are not relevant for considering the cash flows for debt servicing.

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