get_altman_z: Get Altman Z-Score

In OliverHennhoefer/quant: Fundamentals Data for Stock Research

Get Altman Z-Score

Description

Wrapper function for fetching data from gurufocus.com.

Usage

get_altman_z(df)

Arguments

df	data.frame. Data frame with column 'symbol' containing at least one valid stock ticker symbol.

Details

The Altman Z-Score quantifies the risk of bankruptcy of a company within the next two years. The Z-Score is a multivariate measure of financial distress and classifies the rated company either into the Distress Zone (<=1.8) or into the Safe Zone (>=3). Values in between can be seen as Grey Zone indicating Grey Zone indicating a latent risks of bankruptcy.

The original formula for calculating the Altman Z-score is a linear combination of five business ratios:

Z = 1.2X_{1} + 1.4X_{2} + 3.3X_{3} + 0.6X_{4} + 1.0X_{5}

• X_{1}: Ratio of working capital to total assets. Measures liquid assets in relation to the size of the company and determines the short-term company's solvency.

• X_{2}: Ratio of retained earnings to total assets. Determines whether the company was successful in generating profits and retaining profits for future reinvestments in the business.

• X_{3}: Ratio of earnings before interest and taxes to total assets. Determines how effective a company is at using its own assets for generating profits.

• X_{4}: Ratio of market value of equity to book value of total liabilities. Gives an impression to what extent the company's own assets can decline in value before the liabilities exceed these assets and the company becomes insolvent.

• X_{5}: Ratio of Sales to total assets. Common measure for determining the total asset turnover ratio that measures how effective a company is at generating revenue from its own assets.

The formula was parameterized by multivariate linear discriminant analysis applied on a data set of 33 solvent and 33 insolvent companies (see references).

Value

Input data.frame supplemented by the company's available Altman Z-score data.

References

Altman, Edward I. (1968): Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy in The Journal of Finance, Volume 23, Issue 4, p. 589-610

Altman, Edward I., Sanders, A. (1998): Credit Risk Measurement: Developments over the last 20 Years in Journal of Banking and Finance, Volume 21, p. 1721-1742

Altman, Edward I. (2000): Predicting Financial Distress of Companies: Revisiting the Z-Score and Zeta Models, Working Paper, New York University

Altman, Edward I. (2002): Revisiting Credit Scoring Models in a Basel 2 Environment, Working Paper, Stern School of Business, New York University

Altman, Edward I., Iwanicz-Drozdowska, Malgorzata, Laitinen, Erkki K., Suvas, Arto (2014): Distressed Firm and Bankruptcy Prediction in an international Context: A Review and empirical Analysis of Altman's Z-Score Model, Working Paper, Stern School of Business, New York University

Examples

df <- data.frame('symbol' = 'AAPL')
res <- get_altman_z(df)

OliverHennhoefer/quant documentation built on Sept. 18, 2022, 5:50 p.m.