Find Tenant's Altman Z-score to determine solvency

A recent article from American Express Open Network gives us a guideline for determining the solvency of companies that may even be our tenants in commercial properties. The article uses NYU Prof. Max Heine's updated research of the Altman Z-Score by Edward Altman. Brief Recap:

The Altman Z-score for Predicting Bankruptcy

The Z-score formula developed in 1968 by Edward Altman determines the probability that a company will go bankrupt within two years.  It remains the most-used and most-respected method for predicting bankruptcy.  The formula was originally designed for public manufacturing companies with at least $1 million in assets but versions for non-manufacturing and private companies have been developed.  Multiple tests have been conducted in the 40 years since the formula was developed to determine its efficacy.
Recent follow up tests show that the formula is 80 percent to 90 percent accurate at predicting bankruptcy within one year.

Ingredients for an Altman Z-score

The Z-score is basically a mathematical formula that takes the weighted sum of five key business ratios.  The five ratios that are used to calculate the Altman Z-score are:

• T₁ = Working Capital / Total Assets
• T₂ = Retained Earnings / Total Assets
• T₃ = Earnings Before Interest and Taxes / Total Assets
• T₄ = Market Value of Equity / Book Value of Total Liabilities
• T₅ = Sales / Total Assets

These five ratios are each multiplied by a coefficient before being added together to arrive at the Z-score. 

The standard formula is:

Z = (1.2*T₁) + (1.4*T₂) + (3.3*T₃) + (0.6*T₄) + (.999*T₅)

Interpreting the Z-score Results

After preforming the calculations above, the end result will be a number that you will then compare to the established Z-score classifications:

• a Z-score greater than 2.99 puts the company in the safe zone which means bankruptcy is unlikely within the next two years
• a Z-score between 1.80 and 2.99  puts the company in the grey zone which means it could go either way in the next two years
• a Z-score below 1.80 puts the company in the “distress zone” which means bankruptcy is likely within the next two years

Some Things to Keep in Mind When Using the Z-score

The Altman Z-scored does not work for financial companies.  So if you are selling to banks, this isn’t an appropriate tool.  Also remember that the formula is modified if you are evaluating private companies and non-manufacturing companies.

Hotel in NJ offers Autism-friendly benefits

 

Great article about a Hotel owner making accommodations for guests that have autistic children. Given the fact that my daughter is autistic, this article caught my eye and I have felt for years now that this is long overdue. Just wanted to add my appreciation and hope the trend continues because autistic children love the familiar and predictable. Hotel operators would be wise to create an environment that families could rely upon when making vacation plans.

TENAFLY, N.J. -- All the glassware in the Alpine Suite at the Clinton Inn Hotel in Tenafly, New Jersey is unbreakable -- the wine glasses, the water tumblers, even the glass in the cabinet doors.

The furniture has rounded corners with soft bumpers. A round table has replaced a square one. Flower vases and other decor have been glued down. The iron is stored behind a safety lock and the windows are locked. The television is fixed securely to the wall, instead of sitting on a credenza, as in other guest rooms.

Everything in the suite has been designed to give peace of mind to guests who have children with autism.

Even the inside lock on the door of the suite is mounted high, out of reach of small grasping hands. Most important of all, the door has an alarm that sounds -- beep, beep, beep -- if a child attempts a hasty exit.

"Autistic kids tend to wander," said Tony Morreale, the manager. "Parents need to know when they’re wandering." 

Live Feed - BP Gulf Oil Spill

I wanted to put the Live Feed on the blog so it's easily found to show what's gushing out of the broken well a mile down in the Gulf. It's understandable from the feed why it's predicted that BP could be bankrupt in less than a month.

They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11.

And from the other news of the day, it's a metaphor for the spending that will bankrupt the US in 18 months.

The report that was sent to lawmakers Friday night with no fanfare said the ratio of debt to the gross domestic product would rise to 102 percent by 2015 from 93 percent this year.

"The president's economic experts say a 1 percent increase in GDP can create almost 1 million jobs, and that 1 percent is what experts think we are losing because of the debt's massive drag on our economy," said Republican Representative Dave Camp, who publicized the report.