Understanding Altman Z-score for Credit Risk Measurement

In evaluating the creditworthiness of a corporate bond issuer, analysts often employ various quantitative measures to assess credit risk. One commonly used metric is the Altman Z-score, which combines five financial ratios to predict the likelihood of bankruptcy. A higher Z-score typically indicates a lower risk of bankruptcy.

Given this context, consider a corporate bond with the following characteristics:

• Revenue: $500 million
• Net Income: $50 million
• Total Assets: $700 million
• Total Liabilities: $400 million
• Retained Earnings: $200 million

Which of the following statements about the Altman Z-score calculation for this issuer is true?