**The Z-Score Takes a Very Stern View of Your Financial Statements**

**The interesting thing about the Z-Score is that it is a good analytic tool no matter what shape your company is in. Even if your company is very healthy, for example, if your Z-Score begins to fall sharply, warning bells should ring. Or, if your company is barely surviving, you can use the Z-Score to help evaluate the projected effects of your Enhancing efforts.**

##### working capital/total assets

**Liquidity compares net liquid assets to total assets. The net liquid assets, of working capital, are defined as current total assets minus current total liabilities. Financial difficulties, working capital will fall more quickly than total assets.**

##### Retained earnings/total assets

**This ratio is a measure of the cumulative profitability of your company. To some degree, the ratio also reflects the age of your company, because the younger it is, the less time it has had to build up cumulative profits. **

##### ebit/total assets

**This is a measure of profitability, or return on assets, calculated by dividing your firm's EBIT (earnings before interest and taxes) for one year by its total assets balance at the end of the year. This ratio measures how productively you are using funds.**

##### net worth/total liabilities

**This ratio is the inverse of the more familiar debt-to equity ratio. It is found by dividing your firm's net worth (also known as equity) by its total liabilities. Non bankrupt firms maintain more than twice as much equity as debt.**

**"Dr. Cochran help us understand that asset turnover is an indication of how efficiently our company is using our assets to generate sales."**

**- Shari & Norman T.**

**"Cochran Consulting explained to us how the ratio of retained earnings to total assets measures the extent to which our company relies on debt, or leverage. Wow, what an eye opener!"**

**- Tanya & Rahul M.**

**Working Capital/Total Assets****Retained Earnings/Total Assets****EBIT/Total Assets****Market Value of Equity/Total Liabilities****Sales/Total Assets**