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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 84.82

+3.0%

Feb 6 9:30 AM EST

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To: Stock Farmer who wrote (55744)	9/30/2001 8:13:48 AM
From: Monty Lenard	Read Replies (1) of 77400

Hi John, here is you a new analytical tool that is easy to set up in excel. Wonder how crisco rates? :-) There is a specific mathematical model called the Altman Bankruptcy Predictor that is widely used in the turnaround industry to assess and predict a company's short-term survival prospects. The model is named after the renowned Edward I. Altman, Max L. Heine Professor of Finance at New York University's Stern School of Business, who published the initial research back in 1968. stern.nyu.edu Altman's Bankruptcy Predictor (or Z-score) is calculated as follows: Z = (1.2X1)+(1.4X2)+(3.3X3)+(0.6X4)+(1.0*X5) where: X1 = Working Capital / Total Assets = WC/TA X2 = Retained Earnings / Total Assets = RE/TA X3 = EBIT / Total Assets = EBIT/TA X4 = Market Value of Equity / Book Value of Liabilities = MVE/BVTL X5 = Total Sales / Total Assets = TS/TA The Altman Z-score is used to determine a company's short-term outlook or future viability, where: > 3.0 ... Strong 1.8 - 3.0 ... In danger < 1.8 ... Near death According to one scholarly journal, Altman's Bankruptcy Predictor has proven consistently accurate over the period of time since its development. The original samples in Altman's research displayed accuracy of 95 percent based on data from approximately one year prior to failure. The accuracy dropped to 72 percent based on two-year data. Subsequent tests on firms that have gone bankrupt since 1968 have shown an accuracy level of 82 to 85 percent. According to the same journal, Altman's model is also used for a number of different purposes throughout other industries besides the turnaround industry; i.e.: a) Credit analysis for accept/reject decisions, b) Investment analyses for money managers and investment bankers, c) Auditors' analyses for going concern assessments, d) Legal analysis for prudent man and failing company doctrine defenses, and e) Merger target analyses both before and during reorganizations. What Altman's formula doesn't tell you is what to do with the results. That you have to determine for yourself. Monty

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