Question
In the Altman Z Score model , a company with a Z Score of 1.7 is classified in the financial distress zone . If a company’s Z Score increases from 1.7 to 2.9 over a two-year period, this indicates that the company has likely moved from a high-risk zone to a ________ zone, suggesting a reduction in the probability of bankruptcy.
Solution
A Z Score below 1.8 indicates a high risk of bankruptcy, while a score of 3 and above signals that the company is in a safe zone . If a company's Z Score increases from 1.7 to 2.9 , it suggests an improvement in its financial condition and a reduced likelihood of bankruptcy, moving it into the safe zone .
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