NYU Stern Professor and inventor of the Z-Score tool Ed Altman was quoted in the Wall Street Journal this week regarding the health of corporations. The following is an excerpt from the WSJ article “Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback.”
“But analysts are on the watch for early signs of trouble among high-return, high-risk investments. Before the crisis, in 2007, junk bonds made up 17% of the corporate bonds sold in the U.S., according to Dealogic. This year, they were a quarter of the total. Most companies with credit ratings below investment grade are especially vulnerable to rising interest rates because they typically must refinance debt because they lack the cash to retire it.”
“Many companies are repeating some of the mistakes of the past,” by taking on too much debt, said Edward Altman, a New York University business school professor and the creator of a well-known tool for measuring corporate health, called the Z-score.
Mr. Altman said his latest forecast, which measures the probability of corporate defaults, showed overall corporate health was “no better than it was in 2007 and by some measures worse.” The median scores, which measure corporate financial health by analyzing a combination of liquidity, earnings, solvency and stock market valuations, were 4% lower for companies rated “junk” in 2012 than in 2007.
Read the entire article here.
Professor Ed Altman teaches Bankruptcy and Reorganization the MS in Risk Management Program.