Ch 8

Question 1

altman’s Z

Answer 1

used for bankruptcy classification
the higher the ratio, the less likely they are to go bankrupt

Question 2

What ratios does altman’s Z use

Answer 2

working capital/total assets
retained earning/ total assets
earnings for taxes/total assets
stockholder’s equity/total debt owed
sales/total assets

Question 3

what are the three altamn’s Z groupings

Answer 3

z < 1.8 = significant risk of bankruptcy
1.8< z < 3.3 = at risk “grey zone”
z > 3.3 = not at risk “safe zone”

Question 4

base rate

Answer 4

the probability of an event occurring based on a related historical
average

Question 5

base rate fallacy

Answer 5

occurs when the prediction places too little weight on the base rates of the past and instead uses different or new information.

Question 6

time series analysis

Answer 6

a tool/technique used to predict future values based on past values of the same variable.

Question 7

persistence

Answer 7

the repeatability and durability of the financial statement variables over time. Simply, it estimates if the trend of the past financial performance will continue.

Question 8

capital budgeting

Answer 8

evaluating potential different large investments to see which a company should choose

Question 9

what visualizations are used for predictive analysis

Answer 9

pivot table
scatter plot
forecasting