TB MC Qu. 08-14 If a company has an...

If a company has an Altman Z-score of 1.7, the company would be classified in the:

Question

TB MC Qu. 08-14 If a company has an...

If a company has an Altman Z-score of 1.7, the company would be classified in the:

BlackTom AI · Accepted Answer

The question presents a scenario involving the Altman Z-score and asks to classify the company's financial distress level based on a score of 1.7.
Option 1: 'green zone, no risk of bankruptcy.' This would correspond to a Z-score well above the threshold for distress, typically indicating strong financial health. Since 1.7 is far from that high range, this option misrepresents where a low score sits.
Option 2: 'gray zone, or at risk of bankruptcy.' The gray zone usually covers scores that are neither clearly safe nor clearly distressed, representing intermediate risk. A score of 1.7 is generally below this intermediate range, so labeling it gray zone would be inappropriate for this value.
Option 3: 'safe zone, not currently at risk of bankruptcy.' The safe or healthy zone is associated with high Z-scores that indicate low bankruptcy risk. A score of 1.7 does not meet the criteria for safety, so this option is incorrect for this score.
Option 4: 'distress zone, or at significant risk of bankruptcy.' The distress zone corresponds to low Z-scores that signal higher likelihood of bankruptcy. For non-public companies, the commonly cited threshold places distress below roughly 1.81, with scores in this region indicating significant risk. A score of 1.7 falls into this category, suggesting substantial financial stress according to the standard interpretation.
In summary, among the options, the one that matches the interpretation of a Z-score of 1.7 is the distress zone, reflecting a high risk of bankruptcy. The other options describe zones associated with higher scores (safer financial positions) or the gray zone, which does not align with a score as low as 1.7.

TB MC Qu. 08-14 If a company has an... If a company has an Altman Z-score of 1.7, the company would be classified in the:

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