Razor:
Thanks for post of the Altman Bankruptcy Predictor and it's application to our troubled little company. I have not previously encountered this measure of indication of survival/bankruptcy likelihood.
Clearly, the dominant term in the formula, as it applies to Abacan, is the fourth one:
X4 = Market Value of Equity / Book Value of Liabilities = MVE/BVTL
We know only too well that the MVE has gone down since the date of the available data on which your calculations were based. Unless a major agreement for concessions to the company's liabilities can be made, the BVTL will not go down.
Therefore, the inescapable conclusion is that without a major reduction in liabilities, the overall "Z" value will probably be found to have decreased further and fallen even more into the "near death" range, if it could be updated with current figures.
The formula's probable efficacy is somewhat corroborated by the fact that it, as well as logical thought, indicates that there is no way to get back into survival range without a major trimming of liabilities.
While there are those that might argue that there are circumstances which might save the company from the specific formal filing of bankruptcy, the Altman Predictor is certainly another indication that the company's alternatives are in the "moves of desperation" realm.
As Paul has pointed out, those that are still long on this stock (myself included) are playing against the odds, both as one would logically conclude from a qualitative consideration of the facts, and, as demonstrated by the Altman Predictor, also from consideration of quantitative or analytical measures.
I, too, will file the Predictor away for future use, even while I hope that in this case we ultimately are within the "margin of error" in which the final outcome goes against the formula's predictions.
Illogically and hopefully,
Steve |
