(a) Calculate the Z-scores for Ali plc and Bhaskar plc (see SAQ 7.1 on pages 250 €“251), using the Altman model set out on page 280.

(b) Comment on the Z-scores for the two businesses and the validity of using this particular model to assess these particular businesses.

Data from SAQ 7.1:

Both Ali plc and Bhaskar plc operate wholesale electrical stores throughout the UK. The financial statements of each business for the year ended 30 June 2010 are as follows:

All purchases and sales were on credit. Ali plc had announced its intention to pay a dividend of £135 million and Bhaskar plc £95 million in respect of the year. The market values of a share in Ali plc and Bhaskar plc at the end of the year were £6.50 and £8.20 respectively.

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Statements of financial position as at 30 June 2010 Ali plc Bhaskar plc ASSETS £m £m Non-current assets Property, plant and equipment (cost less depreciation) Land and buildings Fixtures and fittings 360.0 510.0 87.0 91.2 447.0 601.2 Current assets 403.0 Inventories 592.0 Trade receivables 176.4 321.9 Cash at bank 84.6 91.6 853.0 816.5 Total assets 1,300.0 1,417.7 EQUITY AND LIABILITIES Equity £1 ordinary shares Retained earnings 320.0 250.0 624.6 367.6 687.6 874.6 Non-current liabilities Borrowings – loan notes Current liabilities 250.0 190.0 Trade payables Тахation 406.4 275.7 17.4 16.0 422.4 293.1 Total equity and liabilities 1,300.0 1,417.7 Income statements for the year ended 30 June 2010 Ali plc Bhaskar plc £m £m Revenue 1,478.1 1,790.4 (1,214.9) (1,018.3) Cost of sales Gross profit Operating expenses Operating profit Interest payable 459.8 575.5 (308.5) (408.6) 151.3 166.9 (19.4) (27.5) Profit before taxation 131.9 139.4 Тахation (32.0) (34.8) Profit for the year 99.9 104.6