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Disclaimer

Jan. 23, 2012 3:43 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Please read the following disclamer which applies to all my articles:

This research is NOT a guarantee. This article was written to provide investor information and education, and should not be construed as a guarantee or investment advice.

This research might not pertain to you. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner.

Information and data provided may contain errors. My articles use company releases, government filings, third-party data, and academic research. These may contain approximations and errors. Please check estimates and data for yourself before investing.

Use of the Altman Z-Score. The Altman Z-Score is a measure of bankruptcy risk that is not based on stock price volatility. This score places companies into three groups: "safe" (Z-score > 2.99), "grey" (Z-score between 2.99 and 1.81), and "distressed" (Z-score < 1.81), and is surprisingly useful for identifying bankruptcy risk in the coming year. This method of segmenting companies uses of fundamental (financial statement) data and market capitalization only, not on price volatility. Beyond credit risk prediction, companies with higher Z-scores have historically outperformed companies with lower Z-scores, in aggregate. One sector has not been accurately modeled: Altman's Z-score has not accurately predicted the bankruptcy risk of financial companies.

"Distressed" was a label coined by researchers, and should not be taken to mean that any company is bankrupt or in default on the basis of this calculation alone. Credit scoring is not fate, only prediction based on relative past performance of companies grouped by key variables. Time will tell.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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