Relative Impact of the Different Variables
<<Looking at the model a bit further, it appears that if all factors that are divided by assets are minimal or negative, and the market capitalization given the company is ridiculously high, making X4 very high (unless the company has already collected huge liabilities) the Predictor comes out in the "STRONG" or higher area.>>
Steve: To be purely technical, I think the negative numbers should be used in the calculation. I only zeroed them out to be as fair to the companies' management teams as possible. For example, in all honestly, a history of continuing losses, which will show up as a large retained earnings deficit, should actually work to counteract the heady influence of an irrationally high stock price. The same can be true for negative working capital, etc.
<<The simplicity of the formula and the ease of understandability of what each of the factors says about the company, appears to make it an easy and reasonable "first cut" test when looking at a company from many different points of interest. And, as you've pointed out, looking at how the Z factor trends with time provides a quick way of combining many changes to sense a general direction.>>
Very well said. Thanks for the post.
Razor |
