Bankruptcy Scores: 18 Riskiest Retail Stocks

Prof. Edward Altman’s Z-Score was used to identify the 18 riskiest retail stocks.

Retail risks are still a major concern, as consumer spending remains skittish and the job market continues to worry shoppers. The economic downturn has, of course, already eliminated several retail powerhouses, including Circuit City and Linens ‘N Things. But while the fear of bankruptcy filings has, for the most part, subsided, some companies remain in danger of insolvency.

One way to test if a company poses any threat of filing for bankruptcy is through the Altman Z-Score, a formula developed by New York University professor Edward Altman in 1968. The Altman Z-Score measures several aspects of a company’s financial health to forecast the probability of it going bankrupt within two years. Since its inception, the formula has been 72% accurate in predicting corporate bankruptcies two years prior from the filing.

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One Response to Bankruptcy Scores: 18 Riskiest Retail Stocks

  1. Andrew Koh says:

    The threat of bankruptcy risk for any company remains very real and serious investors should factor this into their own investment and trading strategies. Altman’s Z score can be used to trade ahead of market events (i.e. mean reversion trades) since these events may not yet been translated into asset prices and hence can serve as an inter-link in measuring the risk and return of a corporation.

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