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Strategies & Market Trends : Bankruptcy Predictor Model
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To: Greg Jung who wrote (109)3/20/1999 5:23:00 PM
From: Mad2  Read Replies (1) of 477
 
Greg, I'm not suggesting they are dying, however they are in a dangerous position (reflected in their stock price). If oil rebounds and E&P budgets grow it might have the potential to pay big. Yet on the other hand the issue at hand to measure risk and potential reward is figuring out their cash flow for 1998. As this isn't the HMAR thread we might not want to clutter up Razors thread too much. I think the purpose of the Altman indicator isn't to necessarly predict bankruptcy (as I don't use it for that) but rather to measue a companies financial strength. I think the risk here with HMAR is if they run out of cash for the reasons we have been discussing, what will they do to raise cash? When over a barrel and survival is the issue common equity holders have the most to loose.
Going back to the discussion on the Altman indicator it would be interesting to evaluate similar companies to HMAR and measure financial strength comaping that to current and future cash flow arriving at a low risk way to play this sector.
Unfortunatly extracting data enabling this type of comparison is a bit cumbersome (I do it manually). As we discussed with Sword if it could be extracted and analysed with software we could create some models to better value the universe of companies within a sector with the hope of finding the "best values" in terms of risk vs. reward.
In closing I wouldn't suggest that HMAR is headed for bankruptcy as frankly I can't predict oil prices or E&P budgets that drive the revenue of HMAR. I would suggest however that HMAR faces a negative cash flow for some undetermined period of time (that's why thy suspended the payment on the 6.5% conv pref issue).
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