The Relationship between Z-Score and Stock Prices

This paper uses Altman (1968) Z-Score measure of financial distress to calculate Z-scores of a sample data set of three major companies in the US PC industry over the period of 2004-2014.The companies are Apple, HP and Lenovo. Financial data for calculating Z-score measures is obtained from the annual reports of each company and historical stock quotes are used to calculate stock returns. The paper then attempts to establish a relationship between the two calculated variables: Z-scores and stock returns. A deep comparative analysis between companies is carried out using the results of the regression. Several arguments are also presented in order to justify the results which show a positive relationship between Z-scores and Stock returns, indicating a high Z-score or low financial distress reflects higher stock prices