Excel Spreadsheets: BUSINESS SOLVENCY RATIOS PRO for Excel
Predicting Corporate Insolvency

Manufacturer : International Company Services Software Inc.

Whether or not a company is heading towards eventual insolvency can be predicted in a very straightforward way by quick analysis of key financial ratios. Companies enter the glide path towards insolvency when leading indicators within financial statements fall below sustainability. In this new version of BUSINESS SOLVENCY RATIOS PRO, you can calculate the likelihood of future insolvency using pre-programmed multivariate analysis of your financial ratios that predict future probabilities of insolvency at 90% confidence levels. The More Info section contains financial data we have extracted from WorldCom 2001 reports, which clearly indicate that this company was insolvent and was undeserving of its share price during 2001. Their own figures reveal everything. Analyse any company with BUSINESS SOLVENCY RATIOS PRO.


Calculating Solvency Ratios

Business Solvency Ratios PRO calculates solvency ratios developed by Robert Altman and James Ohlsen. When applied to company analysis their formulae correctly predicted future insolvency in 90% of cases studied.

Altman and Ohlsen Formulae Test – Example:

Financial data for years ending 2000 and 2001 test Altman and Ohlsen ratios for WorldCom Inc.

The results displayed below confirm both sets of financial ratios are accurate at predicting insolvency even though the insolvent state has not yet emerged. Both indexes for WorldCom in 2000 and 2001 were well below solvent levels.

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The Robert Altman index has to be well above +1.20 for public companies (1.80 for private firms) for a business to be considered financial strong. Clearly with a calculated Altman Index of -0.08 in 2000 falling to -0.195 during 2001 his equations predicted a major financial crisis at WorldCom would occur as far back as 2000. The Ohlsen Index of 6.7% & 7.3% for both periods also demonstrates a much higher probability of insolvency than normal. (A healthy Ohlsen scrore is an insolvency probability below 0.25%).

Insolvency Forecaster also calculates trends so that managers and investors can pick up whether the financial changes between periods are leading towards or away from financial problems.

Insolvency Forecaster PRO supplies an additional check on Altman and Ohlsen ratios by calculating the share valuation of companies based on free cash flows. Again the figures below belong to WorldCom 2001. The WorldCom valuation (free cash flow per share) is negative. The program again forecast accurately that the closing share Price: at the end of 2001 ($16.23) represented a severe overvaluation of underlying value. In reverse this template can be used for finding undervalued companies.

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Insolvency Forecaster PRO can be used by investors and businesses to calculate the real financial strength and health of any company or stock. Financial trends between one period and the next provide the only early warning signal of problems ahead or conversely movement towards more secure financial positions. The Index calculations include relatively small weighting of stated earnings (which can be distorted) and disregard goodwill and intangible values on balance sheets as being of questionable value in today's financial environment. However if a user wishes to value a company with goodwill and intangibles included, this option exists within the program.

This program is supplied as part of the Gold Disk Edition Collection of Business Support Programs.

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System Requirements

Platform : Windows or Mac  &  MS Excel 95/Excel97/Excel 2000/Excel XP/Excel 2002/Excel 2003 or MS Office 7(95) or later.


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Additional Information: All Programs Gold Edition
OS : Windows 95, 98, ME, NT/2000 or XP

Excel 97 or later. Web data requires Excel 2000 or above and Windows XP/2000/2003 or later.

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