Altman Z score analysis of both the companies

Altman Z score -A predictive model created by Edward Altman in the 1960s. This model
combines five different financial ratios to determine the likelihood of bankruptcy amongst companies.

Model: T1 = Working Capital / Total Assets T2 = Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Market Value of Equity / Total Liabilities T5 = Sales/ Total Assets

Z score bankruptcy model: Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + .999T5 Zones of Discrimination: Z > 2.99 -Safe Zones 1.81 < Z < 2.99 -Grey Zones Z < 1.81 -Distress Zones

Altman-Z score for GAIL India Ltd.

YEAR 2011

T1 = (Current Assets Current Liabilities) / Total Assets T2=Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets0

-0.10341 0.643409

0.182894

T4 = Book Value of Equity / Total Liabilities T5 = Sales/ Total Assets Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

0.696527 1.291038 3.08919

Altman-Z score for India cements

YEAR 2011-12

T1 = (Current Assets Current Liabilities) / Total Assets Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Book Value of Equity / Total Liabilities T5 = Sales/ Total Assets Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

-0.4848 0.935802

0.481481

1.002506 3.034568 5.953321

Overall Analysis
ACC cements is a better company to lend for long term because Low risk(higher interest coverage Ratio) Higher efficiency of the company as in assets turnover ratio and so any new debt will definitely be taken for expansion purposes. India Cements has high debt to ratio and low Interest coverage ratio .It will be risky affair to lend to it. The company should try to infuse more Equity instead of debt The Z-scores also indicates serious problem for India Cements and Lenders should be very careful while lending. ACC has very high score and is healthy.