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Stingy Investor Tip Sheet

Altman Z-Score

How likely is a firm to go bankrupt? If in doubt, you can just look up its Altman Z-Score. High scores indicate that bankruptcy in the next two years is unlikely. Low scores indicate that the firm is at risk.

I've listed the Altman Z-Scores (AltZ) for the stocks in the S&P/TSX Composite below. But you won't find financials in the list because the method was developed for non-financials.

Altman Z-Score Guide
AltZ > 3.0 Bankruptcy not likely
1.8 < AltZ < 3.0Bankruptcy possible
AltZ < 1.8Bankruptcy likely

I admit to having some reservations about the list. The Altman-Z score was developed for manufacturing firms. It isn't as good when dealing with other industries. For instance, regulated utilities are very likely much safer (on the financial risk front) than their Altman-Z scores indicate. So, don't stop with the Altman-Z score!

12/15/2009   1:30 PM EST   Permlink   save & shareDebt

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