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Strategies & Market Trends : Bankruptcy Predictor Model
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To: Razorbak who wrote (121)3/28/1999 12:39:00 PM
From: Bob Rudd  Read Replies (1) of 477
 
<<I'm interested in trying other models>> How about this:
<THE SPRINGATE MODEL
This model was developed in 1978 at S.F.U. by Gordon L.V. Springate, following procedures developed by Altman in the U.S. Springate used step-wise multiple discriminate analysis to select four out of 19 popular financial ratios that best distinguished between sound business and those that actually failed. The Springate model takes the following form:
Z = 1.03A + 3.07B + 0.66C + 0.4D

Z < 0.862; then the firm is classified as "failed"

WHERE A = Working Capital/Total Assets

B = Net Profit before Interest and Taxes/Total Assets

C = Net Profit before Taxes/Current Liabilities

D = Sales/Total Assets

This model achieved an accuracy rate of 92.5% using the 40 companies tested by Springate. Botheras (1979) tested the Springate Model on 50 companies with an average asset size of $2.5 million and found an 88.0% accuracy rate. Sands (1980) tested the Springate Model on 24 companies with an average asset size of $63.4 million and found an accuracy rate of 83.3%. >

The nice thing about this is that by adding a bit of additional information on Current Liabilities and Interest Expenses, this can be tacked on to existing spreadsheet to produce a confirming predictor. I like the inclusion of current liabilities, too.

Bob
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