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Strategies & Market Trends : Bankruptcy Predictor Model

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To: Q. who wrote (267)	4/1/1999 4:26:00 PM
From: Bob Rudd	of 477

John: Thanks for the as usual insightful post. I may take a stab at putting it in a spreadsheet but I was just a wee lad when last I worked with logarithms. Development stage companies: I suspect a rather unquantifiable aspect of their ability to thrive in a cash-flow vacuum would be the dream or story factor that encourages the susceptable to shove good money after bad into enterprises with little more going for them than the long shot of discovering a way to turn lead into gold or some such. Here's a modification of Altman's that's supposed to be more for service oriented firms. I saw no testing on it and doubt it would be that great for R & D intensive, development stage companies...more for traditional retailer, wholesaler type firms. ALTMAN modified for Non-Manufacturing & Service Firms X.sub.1 Working Capital to Total Assets WC/TA X.sub.2 Retained Earnings to Total Assets RE/TA X.sub.3 Return on Total Assets EBIT/TA X.sub.4 Equity to Debt MVE/BVTL Z = 6.56 X.sub.1 + 3.26 X.sub.2 + 6.72 X.sub.3 + 1.05 X.sub.4 Bankrupt BK? less than 1.1 Weak 1.1-2.6 Strong greater than 2.6

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