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Strategies & Market Trends : Bankruptcy Predictor Model -- Ignore unavailable to you. Want to Upgrade?

To: Razorbak who wrote (21)	3/15/1999 12:19:00 PM
From: Q.	Read Replies (1) \| Respond to of 477

Thanks, Razorbak. You are right that reducing assets to pay off debts would be a way of turning around ... I hadn't thought of how that approach corresponds nicely to putting the assets in the denominators. >Regarding the issue of market cap, I think the X4 variable (market value of equity / book value of total debt) provides a reasonable proxy for market cap to cash burn rate within the model as is. A lot of development stage companies have zero long term debt and very little current liabilities as well. So they would get a hugely positive value of this ratio, since you would be dividing nearly by zero. Yet these companies can still fail and go out of business. The ratio value of equity / book value of total debt might make sense for a company that had operations, but I think for developing stage companies it doesn't make nearly as much sense as market cap / cash burn. I suppose my interest in developing stage companies is different from what you are thinking of, which is probably turnarounds for operating companies. There isn't as much hope of turning a developing stage company around after it goes bad as there is for an operating company. The latter has the prospect of generating cash if you can just fix the problems. The developing stage company OTOH has no prospect of generating cash from operations; only from financing by selling equity.