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

To: Razorbak who wrote (225)	3/28/1999 1:19:00 PM
From: Bob Rudd	Respond to of 477

Altman variation: Since many of the firms in todays service/information economy don't make anything perhaps we should be using this variation for those firms: <<Nonmanufacturing Firms. The X.sub.5 (Sales/Total Assets) ratio is believed to vary significantly by industry. It is likely to be higher for merchandising and service firms than for manufacturers, since the former are typically less capital intensive. Consequently, nonmanufacturers would have significantly higher asset turnover and Z scores. The model is thus likely to underpredict certain sorts of bankruptcy. To correct for this potential defect, Altman recommends the following correction that eliminates the X.sub.5 ratio: Z.sub.11 = 6.56 X.sub.1 + 3.26 X.sub.2 + 6.72 X.sub.3 + 1.05 X.sub.4 The predetermined cutoffs for the Z score are as follows: Bankrupt less than 1.1 Zone of ignorance 1.1-2.6 Non-bankrupt greater than 2.6 From: Z scores - a guide to failure prediction. (business failure) (Auditing) by Eidleman, Gregory J. This and the adding back of interest would affect analyis of Vencor VC....they don't make anything and interest would be significant. Bob