BRK.B (Berkshire Hathaway) Probability of Financial Distress (%) : 0.01% (As of Dec. 15, 2024)

Competitive Comparison of Berkshire Hathaway's Probability of Financial Distress (%)

For the Insurance - Diversified subindustry, Berkshire Hathaway's Probability of Financial Distress (%), along with its competitors' market caps and Probability of Financial Distress (%) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

Berkshire Hathaway's Probability of Financial Distress (%) Distribution in the Insurance Industry

For the Insurance industry and Financial Services sector, Berkshire Hathaway's Probability of Financial Distress (%) distribution charts can be found below:

* The bar in red indicates where Berkshire Hathaway's Probability of Financial Distress (%) falls into.

Berkshire Hathaway Probability of Financial Distress (%) Calculation

Probability of Financial Distress (%) (PFD) was developed by John Campbell, Jens Hilscher and Jan Szilagyi in their Search of Distress Risk. It measures the probability that a company will go bankrupt within the next 12 months given its current financial position.

The Probability of Financial Distress (%) was obtained by a logit probability model based on eight explanatory variables. The logit formula to compute the probability of financial distress (LPFD) is given below:

The Probability of Financial Distress (%) (PFD) was then obtianed by:

The eight explanatory variables are:

1. NIMTAAVG = Net Income to Market Total Assets

*Note that for companies reported quarterly, geometrically declining weighted quarterly Net Income data in latest four quarters are used.

2. TLMTA = Total liabilities to Market Total Assets

3. CASHMTA = Cash to Market Total Assets

For insurance companies, CASHMTA is measured as:

4. EXRETAVG = Excess Return compared to the S&P 500

EXRETAVG is the weighted excess return compared to the S&P 500 in past 12 month. Geometrically declining weights are imposed on the monthly excess return to reflect lagged information. The weight is halved each quarter.

5. SIGMA = Standard Deviation of Daily Returns

For sigma, we use the annualized standard deviation of a company's returns over the past 92 days (or 63 trading days).

6. RSIZE = Relative Size

7. MB = Market to Adjusted Book Equity Ratio

8. PRICE

PRICE is measured as the log of the stock price, capped at log(15).

Berkshire Hathaway  (NYSE:BRK.B) Probability of Financial Distress (%) Explanation

Like the Altman Z-Score, the PFD measures a company's bankruptcy risk in the upcoming year. However, the main drawback of the Z-score is it does not apply to banks and insurance companies. According to Investopedia, the concept of "working capital" does not apply to banks and insurance companies, as financial institutions do not have typical current assets or current liabilities like inventories or accounts payable.

Berkshire Hathaway Probability of Financial Distress (%) Related Terms

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Berkshire Hathaway Business Description