First Altman Z-Score Formula Analysis

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First Altman Model (1968)
According to Altman (1968) in The Journal of Finance, the systematic Altman Z-Score formula can be formulated as follows:
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
Information:
X1 = Net Working Capital / Total Assets
X2 = Retained Earning / Total Assets
X3 = Earning Before Interest and Tax / Total Assets
X4 = Market Value of Equity / Book Value of Debt
X5 = Sales / Total Assets

According to Endri (2009) the financial ratios of Altman Z-Score can be summarized as follows:
1. Net Working capital / Total Assets
This ratio shows how the company in generating working capital from the total total assets owned. Net working capital can be obtained by way of current assets minus current liabilities.
2. Retained earning /
This uncertainty is called risk. According to Usman (1989) quoted by Amenah (2002) there are several risks in making investments that will be faced by investors, among others: 1) financial risk, ie risk borne by investors as a result of the inability of issuers in fulfilling the obligation to pay dividends or bond interest As well as the principal of investments. 2) market risk, represents the risk of declining market prices substantially in a given stock or stock due to inflation rate, state economy, changes in corporate management or government policy. 3) psychological risk, ie risk for investors who act emotionally in response to price changes based on optimism or pessimism that can lead to an increase or decrease in stock prices. This risk is closely related to market risk and financial risk. Investors actually do not need the funds so do not need to sell their shares, but they still sell it because it is psychologically affected by other…show more content…
In this study with sampling period during 2010-2015. So the observations made is to use time series data and cross section.

Types and Data Sources
The data used in this research is quantitative data, ie data that can be measured by numbers. The type of data used is secondary data that has been processed from the previous party from the primary data collectors and in the form of research journals required and financial statements of manufacturing companies 2010-2015 period published from the Indonesia Stock Exchange.

Data analysis technique
The First Altman Z-Score Analysis (1968)
According to Altman (1968) in The Journal of Finance, Z-Score Altman model is a model by predicting or classifying companies to determine the level of health based on the value of Z obtained. Systematically Altman Z-Score equations can be formulated as follows:
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Information:
X1 = Net Working Capital / Total Assets
X2 = Retained Earning / Total Assets
X3 = Earning Before Interest and Tax / Total Assets
X4 = Market Value of Equity / Book Value of Debt
X5 = Sales / Total