Download - Altman Z-Score+
Altman Z-‐Score+
Comparing and Improving upon Credit Scoring Systems
Sribatsa Das, MBA
Agenda
• What is Altman Z-‐Score+ • Benefits, Features & Audience • Credit Scoring Methodology • Credit Scoring Systems • Altman Z-‐Score+ Bloomberg Power App • Desktop, Mobile, Web & Web Service • Web Service • Live analysis using Bloomberg Power App • Live analysis using Web App • Summary • Q&A • Appendix
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What is Altman Z-‐Score+
Altman Z-‐Score+ is a corporate credit scoring system developed in collaboraPon with Dr. Ed Altman, Professor of Finance at NYU Stern School of Business.
Classic Enhancements
• Generate Z, Z’ & Z” Scores for public & private firms
• EsPmate Bond RaPng Equivalent (BRE) • Predict 1-‐10 years of Probability of
Default (PD) ExisPng bond/loan New Bond/loan
• Rank firms within and across industry
Insights beyond the tradi5onal Z-‐Score!
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Benefits, Features and Audience
Benefits Features
• Analyze credit risk • Spot investment opportuniPes • Develop trading strategy • IdenPfy turnaround opportuniPes • Use BRE for loan pricing and valuaPon • Monitor long-‐term solvency • MiPgate supply chain risk • MiPgate account receivables risk
• Analyze credit risk of a public company • Analyze historical trend of public
companies • Compare 2 or more public companies • Analyze credit risk of companies in a
por`olio • Enter data or upload file to analyze
both private and public companies
Target Audience
• Common stock and corporate bond investors • SecuriPzaPon specialists • Financial Advisors • Credit officers at financial insPtuPons • Turnaround pracPPoners • Bankruptcy and Restructuring Lawyers • Corporate officers and Auditors
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Agenda
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• What is Altman Z-‐Score+ • Benefits, Features & Audience • Credit Scoring Methodology • Credit Scoring Systems • Altman Z-‐Score+ Bloomberg Power App • Desktop, Mobile, Web & Web Service • Web Service • Live analysis using Bloomberg Power App • Live analysis using Web App • Summary • Q&A • Appendix
Credit Scoring Methodology
BRE
1-‐10 years ExisPng Bond/Loan PD
1-‐10 years New Bond/Loan PD
US
Public
MFG Z”
Z’
Z
NWC = CA-‐CL
BV LiabiliPes
Retained Earnings
Total Assets
MV of EquiPes
BV EquiPes
LTM EBIT
Intangibles (if available)
LTM Sales
PercenPle Ranking within Industry
PercenPle Ranking Across Industry
Industry
Z-‐Series Score
Z/Z’ Z
Z’/Z”
CLASSIFICATION DATA ANALYSIS
YES
NO
YES
YES
NO
NO
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Z-‐Series Score Formula
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Note: If intangible assets is available, Net Tangible Assets is used instead of Total Assets
Data ObservaPons – zero and negaPve values
• Net Working Capital (NWC) can be –ve – Firm using vendor financing
• EBIT can be –ve – Reflects a net loss
• Retained Earning can be –ve – Ending R/E=Beginning R/E + NI – Dividend
• Net loss • Or, dividend paid is higher than Net Income
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ExisPng vs. New Bond/Loan PD
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PD 1-‐10 years into the future
New Bond/Loan PD
Historical experience of over 2,500 defaulPng firms over the period 1971-‐2010 as aggregated by Professor Altman in his highly acclaimed "mortality rate" approach.
This approach analyzes firm incidence of default in a manner similar to an insurance actuary's assessment of "new-‐born" human beings.
Newly issued securiPes
Type Methodology
Usage
ExisPng Bond/Loan PD
Historical incidence of default 1-‐10 years for issues/firms with a certain bond raPng as of some point in Pme.
Accounts Receivable
Accounts Payable
ExisPng bonds/loans
IMPR
OVE
MEN
TS
BRE and PD offer deeper analysis
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Year CumulaPve ExisPng
Bond/Loan PD %
CumulaPve New Bond/Loan PD %
1 0.03 0.01
2 0.05 0.05
3 0.37 0.25
4 0.59 0.41
5 0.76 0.51
6 0.93 0.59
7 1.01 0.62
8 1.13 0.83
9 1.27 0.90
10 1.51 0.95
Z-‐Score 4.47
BRE A1/A+
3.0 1.81
GREEN GRAY RED
Z-‐Score Ba
nd
1
2
3
PercenPle Ranking within industry
PercenPle Ranking across manufacturing sector
76% 75%
Some applicaPons of BRE
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BRE
+ MRP
+ Spread
Investment Strategy
Discount Rate
Loan Pricing
PUT OpPon
UnderwriPng
ValuaPon
Premium
ValuaPon – BRE can serve as discount rate
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FCF1 FCF2 FCF3 FCF4 FCF5
Terminal Value
T=0
Horizon period
• Enterprise Value = Net Present Value (NPV) of Free Cash Flow (FCF) + Present Value (PV) of Terminal Value + Net Debt (Debt – Cash)
• BRE + Market Risk Premium (MRP) can serve as discount rate
PUT OpPon
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PUT OpPon
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Lower security price Higher Payoff
Agenda
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• What is Altman Z-‐Score+ • Benefits, Features & Audience • Credit Scoring Methodology • Credit Scoring Systems • Altman Z-‐Score+ Bloomberg Power App • Desktop, Mobile, Web & Web Service • Web Service • Live analysis using Bloomberg Power App • Live analysis using Web App • Summary • Q&A • Appendix
Credit Scoring Systems
Web Bloomberg Power App Mobile App
Desktop
Web Service
SYSTEM
S
Bankers
Traders
Por`olio Managers
Risk Officers
Hedge Fund Managers
A/R Managers
Supply Chain Managers
Controllers
Auditors
Lawyers
Credit Officers Insurance Underwriters
Consultants Internal Corporate Users
Financial Franchises
ERP Systems
UnderwriPng Systems
Approval Systems
Travellers
AUDIEN
CE
Heavy Financial Analysis Convenience Office Use Enterprise Systems
USA
GE
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Agenda
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• What is Altman Z-‐Score+ • Benefits, Features & Audience • Credit Scoring Methodology • Credit Scoring Systems • Altman Z-‐Score+ Bloomberg Power App • Desktop, Mobile, Web & Web Service • Web Service • Live analysis using Bloomberg Power App • Live analysis using Web App • Summary • Q&A • Appendix
• Provides access to public firms worldwide • Offers value beyond AZS command
– BRE – PercenPle Ranking – PD
• Requires Bloomberg Terminal • Access via APPS ALTMAN <GO>
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Altman Z-‐Score+ Bloomberg Power App
APPS ALTMAN <GO>
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Mobile, Desktop, Web Apps & Web Service
Processing Engine
Desktop Mobile Web Web Service
• Analyze public industrial firms listed in the United States and Canada – 6,000+ industrial companies available – Three years history is available
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Excel Plug-‐in
Agenda
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• What is Altman Z-‐Score+ • Benefits, Features & Audience • Credit Scoring Methodology • Credit Scoring Systems • Altman Z-‐Score+ Bloomberg Power App • Desktop, Mobile, Web & Web Service • Web Service • Live analysis using Bloomberg Power App • Live analysis using Web App • Summary • Q&A • Appendix
Web Service
Modularity Produc5vity Portability
• Pla`orm agnosPc • SOAP/REST Protocol • Java, C#, VB, PHP, HTML
• Faster Time-‐To-‐Market • Minimal learning curve • Client stubs available
• Plug-‐N-‐Play across applicaPons
• Select any funcPon
KEY BENEFITS
KEY FEATURES
• Integrate with enterprise systems • Perform the analysis seamlessly without switching applicaPons
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How does Web Service work?
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AltmanZScoreService Web Service
APIs
Enterprise ApplicaPon
User clicks a buJon
ApplicaPon sends a request in the background
Result displayed ApplicaPon receives a response
Request
Response
1
3 4
2
Web Service APIs
Analyze Data Analyze US and Canada listed public companies
analyzeCompany fetchAllIndustries
analyzeCompanies fetchAllManufacturingIndustries
analyzeCompanyQuarterly fetchAllNonManufacturingIndustries
analyzeCompaniesQuarterly fetchAnalysisOfMulPpleCompanies
analyzeUSPublicManufacturingCompany fetchBRE
analyzeUSPrivateManufacturingCompany fetchCompanyAnalysis
analyzeUSNonManufacturingAndNonUSCompany fetchCompanyList
calculateZScore fetchHistoricalAnalysisOfMulPpleCompanies
calculateZPrimeScore fetchHistoricalCompanyAnalysis
calculateZDoublePrimeScore fetchIndustryTitle
esPmateBRE fetchPD
predictPD fetchPDForYearN
esPmateStaPsPcalPD fetchPercenPleRanking
fetchSICCodes
fetchZDoublePrimeScore
fetchZScore
predictPDForYearN
scan
scanForCompanyList
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Live analysis using Altman Z-‐Score+ Bloomberg Power App
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Live analysis using Altman Z-‐Score+ Web App
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Summary
• Apps offers insight beyond tradiPonal Z-‐Score • BRE, Percen5le Ranking and PD
• Apps offers trending and predicPve capabiliPes
• Apps are simple and easy to use
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Q&A
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APPENDIX
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Altman Z-‐Score+ Bloomberg Power App Screenshots
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Analyze a company
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Analyze historical trends
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Compare companies
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Analyze a por`olio
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Analyze a score
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Analyze one year Financial
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Analyze three years Financials
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Analyze financial data File
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Analyze score file
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Mobile App Screenshots
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Mobile App Screenshots
iOS App -‐ Analyze
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Analyze Company
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Analyze Score
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Company Snapshot
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Company History & Compare Companies
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Scan
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Scan
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Web App Screenshots
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Summary – Scores, BRE, PercenPle and PDs over Pme
Comparison of scores and long-‐term solvency risk
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Comparison of Scores
Long-‐term solvency risk
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Scan for companies based on mulPple criteria
Our contact details Contact: Web Site: hJp://altmanzscoreplus.com E-‐Mail: [email protected] Telephone: +1 (973) 944-‐3989 Bloomberg Terminal: APPS ALTMAN <GO> Social Media: TwiJer: hJp://twiJer.com/altmanzscore Facebook: hJp://facebook.com/altmanzscoreplus LinkedIn: hJp://www.linkedin.com/groups/Altman-‐ZScore-‐4328953?trk=myg_ugrp_ovr Video Channel: YouTube Channel: hJp://youtube.com/altmanzscoreplus
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