The Altman Z-Score method (NYU Economics) is another simple way to compare the financial health of two comparable companies. Final Z-Score results, by definition, are compared as follows:
The Interpretation of Altman Z-Score:
Z-SCORE ABOVE 3.0 –The company is considered 'Safe' based on the financial figures only.
Z-SCORE BETWEEN 2.7 and 2.99 – 'On Alert'. This zone is an area where one should 'Exercise Caution'. Z-SCORE BETWEEN 1.8 and 2.7 – Good chances of the company going bankrupt within 2 years of operations from the date of financial figures given.
Z-SCORE BELOW 1.80- Probability of Financial embarrassment is very high.
I have compared Dow and DD Z-Score values in 2005 and in 2015. Data was taken from Yahoo Financial Key Statics, in particular from the Balance Sheets and the Income Statements for these two years.
In 2005, Dow Z-score was 3.0 (safe) and DD was 2.82 (alert). Dow was a bit healthier than DD.
The price to Sales Ratio (PSR): Dow was 0.91, DuPont was 1.47. Both would appeal to Value Investors.
The Current ratios were: Dow was 1.63, DD was 1.66. Both were in a good position to pay off Debt.
The Debt/Equity Ratios were: Dow was 1.71. DuPont was 2.54. Was a bit healthier than DD, but still high.
Market Value MV = No shares * Price: Dow was $42,207mm. DD was $41,743mm.
In 2015, Dow Z-score was 2.88 (Alert) and DD was 2.69 (Alert). Dow, even after UCC and ROH takeovers, was a bit healthier than DD but still in Alert territory.
The price to Sales Ratio (PSR): Dow was 1.19, DuPont was 2.34. Dow would appeal to Value Investors. DuPont would appeal to Growth Investors. This is a shift in strategy by DuPont
The Current ratios were: Dow was 2.18, DD was 1.71. DuPont appears to be in better shape to pay off debt than Dow.
The Debt/Equity Ratios were: Dow was 0.67. DuPont was 0.98. Both have improved since 2005 and now is healthier.
Market Value MV = No shares * Price: Dow was $58,172, DD was $58,884. Less