The Bankruptcy Risk Meter gives a visual representation of how likely a company is to head into serious financial difficulty within the next two years.
The meter is derived from the Altman Z-Score, a statistical bankruptcy indicator generated from a set of balance sheet ratios. If the meter is in the safe zone (*indicating a Z-Score greater than 3*) the financial health of the company is good, whereas a company is in serious trouble if the meter is in the distress zone (*indicating a Z-Score less than 1.8*). Tests have shown that the Distress Zone is 80-90% accurate in predicting bankruptcy.
Bhp Billiton has an Altman Z2 of 4.91 indicating the company is likely to be in good financial health.
The Altman score is based on multi-variate analysis. However, the following tests give an indication for the key factors driving the Z-score (by assessing whether Bhp Billiton is closer to the average value for bankrupt vs. non-bankrupt firms):
For further information on how the Z-Score is calculated click here.
For a list of the stocks with the worst Altman Z Scores click here.