Bankruptcy Predictors Revisited

I'll be the first to admit that I don't know what the predictors are, or what data is used, or how to interpret the results. In fact, from all of the talk I've seen, none of this information has been provided... only that it could have predicted the fall of Enron. With all due respect, holding out Enron as an example of what the predictors can detect, is like flipping the top card from a deck and saying, "See! The predictors said that a red card would be turned over!" Any metric applied to one test subject will skew the results.

What are these magical predictors? I would like to seem them blindly applied to companies like Wal-Mart, Dell, or Southwest Airlines, as well as companies like Enron, ZZZZBest, WorldCom, etc. And what if they were applied to startups like Google, or mature elephants like Ford or ChevronTexaco. Would the results be just a accurate and convincing? Or do you need a company that is failing to be able to predict that the company will go under? Even a broken clock is right twice a day.

So again I ask, where and what are these predictors? And if this information is being offered at a (ssshhhhh!!!!) special seminar with limited seating, or being offered at an introductory price (order before midnight and you'll get a stock market predictor that's guaranteed accurate 50% of the time!), then I think I've heard all that I care to about predictors. However, if you have the formula to create cold fusion, I'm all ears!

But seriously, pardon my sarcastic sense of humor. If these truly are valid metrics, then please share with the great unwashed.

With a sardonic sense of humor, Russell Tuncap, CMA, CPA

I agree, banks use programs for forecasting charge-off loans (consumer and business) and the record there is problematic. Hedge funds use similar models for larger companies for shorting stocks and currencies, etc. If someone has a bankruptcy predictor with 95% accuracy then they would be rich, the "predictors" probably work best in hindsight!

Provide me with your email address and check it out for yourself.

Wayne Brasch

I have to whole-heartedly agree with Russell. Wayne, I've asked you where to find these predictors and all you told me to do was a google search.

In several different strings, you've held out this idea of bankruptcy predictors. You've indicated that most accountants (unlike you, of course) are doing a disservice to their clients because they don't use these predictors, then you pull away when asked for specifics! I would think you would want to ENLIGHTEN those of us who aren't aware of the jewels on which you rely, in order to predict your client's impending doom! Otherwise, what is your purpose for continuing to bring this up on these boards? You've repeated over and over that there are four main predictors, WHAT are they and WHERE can they be found? Or, as Russell implies, is there more to the bait that you are presenting than meets the eye?

Russell...LOVE the humor! Bobbie

Bobbie.

Check your email. If the address is what you show above, it will be there for you to look at. By the way, I enjoyed Russell's humor also. You should see his website and the humor that's on it.

Wayne Brasch

Give me your REAL email address and I will send them to you. What I sent before was, of course, returned to me with "fatal errors"-sounds rather drastic, doesn't it?

Wayne Brasch

Since my quest for a high paying job in Atlanta is sure to be fulfilled shortly (if not, Iv'e got my Lottery ticket to fall back on), I won't charge you for the following link:

The Z score is the only one I'm familiar with, and I haven't really played with it for years. Although I do think ratio analysis (which is what these predictors generally are), can be helpful, it is sometimes difficult in a small business because the financial statements often aren't GAAP and finding >reliable< comparable industry ratios can be difficult. In addition, it's often difficult to convince business entrepreneurs, even those that are in trouble, that they are in >serious< trouble. Eternal optimism reigns.

Best regards Bill

Bill, your source from Norway only shows two of the three formulae that Dr. Edward Altman uses in his risk assessment. It does not show the one most recently developed.

Wayne Brasch

I also don't understand Wayne's reluctance to simply point out what he specifically is referring to unless he's promoting a predictor he himself has produced.

As an engineer/physicist who did majority of work w/ probabilistic models and whose only "interesting" financial classwork was an econometrics course, I took the challenge and did a google on "business bankruptcy predictor tool" and found this link that lists five models including the Altman Z.

Interestingly to me, the of these was published in 1987 and the "Z score" seems to go back to 1968. I was surprised to find a plethora of recent neural-net tools as that seems to have been the more recent flavor for empirical model builders.

So, I'd also ask Wayne if he wants real discussion to provide some real meat to discuss/evaluate.

Your source has some of the information, but is not complete and is out-of-date. Is your email address correct in your post? If so, I will be glad to email you the most current information on these for you to use as you see fit.

I want to check on the correctness of your email before I waste time as I did sending the information to Bobbie. Her email was returned with "fatal errors".

Wayne Brasch

...

Which they have done to the best of their ability. For various reasons, including the inefficiency and failure rate that all bureaucratic entities have, you have to live with an occasional Enron type failure. One only has to look at the pre S.E.C. market to understand how successful the Securities Act and the Security and Exchange Act have been.

Why not just post it?

And, of course, all the perusal of statements won't help much if they're contrived to deliberately mislead...

If you're trying to sell something address it to "Vice President - Credit Dept." Bank of America or Dun and Bradstreet (seriously!) or use the downloadable financial info on 5,000 companies from Charles Schwab, plug the numbers in your program, short the predicted stocks and sit back and ......get rich, or learn something about predictions!

John,

I'm not selling anything. As a matter of fact, I have sent these predictors to some of the people who read this newsgroup per their request.

Wayne Brasch

I will not post an Excel workbook.

Wayne Brasch

"Wayne Brasch" wrote in news: snipped-for-privacy@enews2.newsguy.com:

Wayne, I'd also be very interested in getting your information. My email reply address is correct once you delete "nospam" from it.

Catherine

Well, (finally!) that's what I've been getting at from the git-go---trying to find out what it actually was you had---you were being so close about what the info you actually had/have was/is it seemed very peculiar...

I don't have a use for a spreadsheet, altho I'd find a reference to the basis for the particular implementation of interest since the references I've seen so far are, as you note, somewhat dated.

I'm not sure to what you refer. All I have is the Excel workbook that I created after gathering the various factors from the 4 original creators of these predictors. I got these factors from internet searches myself (as I suggested to someone's inquiry). If you have no use for that workbook, I guess you will have to do as I did.

Wayne Brasch