Is your company headed for bankruptcy?

I read an interesting article in Businessweek entitled "Stocks:Bracing for more bankruptcies" where the author noted that in 2009 he expects the bankruptcy rate will increase. In the article, the author cites that Edward Altman (NYU) was predicting a double-digit bankruptcy rate for 2009.

Altman was the author of "Financial Ratios, Discriminant Analysis and the prediction of Corporate Bankruptcy" published in the Journal of Finance in 1968, from which the "Altman Z-Score" became the standard in assessing a firm's probability of going bankrupt. If you are interested in calculating the Altman Z-Score for your company, the formular is relatively simple, and this website makes it even easier... just plug in the required financial statement variables and take a look at your resulting score. Perhaps before you make your stock recommendation it'd be worth checking if your company is expected to be around for the rest of the year.

Getting more information

I wanted to quickly outline how to get files from EDGAR (Electronic Data Gathering, Analysis and Retrieval System). The first step is to look-up your firm's CIK (Central Index Key) which is used by the SEC to index the filings of each individual firm. Go here and type in your company's name, such as "Netflix" the search engine will come back with potential matches, in Netflix's case there where two possible choices (but both had the same CIK suggesting it was the same company).

Now after you click on your company, EDGAR will provide you with a list of forms that have been lodged with the SEC, they are dated and the form type is also displayed. If we go to the section "Form-type" we can tell EDGAR to limit the forms by a certain type. For example, I want to find Netflix's churn metric in their most recent 10-Q, so I tell EDGAR to only to return Form type "10-Q" and then I click on the first filing.

After getting the filing (in html format), I scoll down to the management discussion and analysis section and find the churn metric at 4.2%. Note the management define churn:
Churn: Churn is a monthly measure defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, then divided by three months. Management reviews this metric to evaluate whether we are retaining our existing subscribers in accordance with our business plans.

some advice...

Now I know this is repetitive.... but:

it is best to find similar firms to your group members as this will make your analysis (significantly) easier.

How can I find a firm in my sector??

Easy: go to http://finance.google.com/finance

You'll notice the list of sectors at the bottom of the page, simply click on your sector and a whole range of companies will be displayed. Easy... so now as a group you may see a company that you know interests you... so what next... click on that company and you'll notice under the graph that Google finance provides a list of "Related Companies." Now you have what you are after, choosing a set of companies in your group couldn't be easier (unless I just assigned them to you)...

remember for the daytime students, you need to report to me the firm you select by next class (i.e., his Thursday).

Grades, an economist's view...

As I start to prepare for my upcoming teaching semester in ACCT6620, my mind already thinks about grading...

One of my economics colleagues, Scott Schaefer, here at the U recently discussed grading from both an incentive point of view (i.e., you will work harder if you know you are graded) and a labor economics point of view (i.e., grades help employers and students more efficiently break down information asymmetries) .

It's worth keeping in mind :)

Read the entry in his blog here: http://utah-economist.blogspot.com/2008/11/grades.html

Welcome

I have set up this blog in order to provide additional background material that will be useful to students undertaking ACCT6620 at the University of Utah.