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Gold/Mining/Energy : ABC - Abacan Resources, Nigerian Oil $$$ -- Ignore unavailable to you. Want to Upgrade?

To: SDR-SI who wrote (2577)	3/15/1999 12:22:00 AM
From: Razorbak	Respond to of 3156

[Off-topic] Bankruptcy Predictor Steve: <<I, too, will file the Predictor away for future use>> FYI, I started a separate thread on the subject tonight (#Subject-26586), so all you have to do is bookmark the thread to stay informed. <<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>> While this may appear to be true in Abacan's case, it's not really true for the formula per se. Actually, the third variable (X3 or EBIT/TA), has the largest coefficient (3.3) and is the dominant variable in the equation. Intuitively, that makes sense, because the largest predictor of corporate viability is, not too surprisingly, earnings! Futhermore, the most important single factor in the entire equation is total assets (TA). Note that total assets is the sole denominator in 4 out of the 5 variables. When total assets increase, 4 out of the 5 variables decrease and vice versa. Therefore, anything that can be done to shrink total assets usually increases a company's Z-score (and thus it's short-term viability). That's why turnaround guys get paid big bucks to parachute into a company at the very top and shrink the organization down to a more profitable size. Assets are often converted to cash, whenever possible, and the cash is then used to pay down debts to more manageable level. Unfortunately, most companies don't call until it's too late to perform a turnaround, simply because top management &/or the board of directors are in complete denial. When that's the case, and we determine that a turnaround isn't feasible, the next best alternatives that we tend to pursue are, in order of preference, either a company sale or a liquidation. Hope that helps. Drop by the new thread to chat if you'd like to discuss the matter further. Good luck. Razor