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Probability of Financial Distress (%) measures the probability that a company will go bankrupt in the upcoming year given its current financial position. A higher ratio indicates a larger probability of bankruptcy for the company, while a lower ratio indicates a healthier fundamental. As of today, Harrow's Probability of Financial Distress (%) is 0.10%.
Like the Altman Z-Score, the PFD measures a company's bankruptcy risk. 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.
For the Drug Manufacturers - Specialty & Generic subindustry, Harrow'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.
For the Drug Manufacturers industry and Healthcare sector, Harrow's Probability of Financial Distress (%) distribution charts can be found below:
* The bar in red indicates where Harrow's Probability of Financial Distress (%) falls into.
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:
LPFD | = | -20.12 * NIMTAAVG | + | 1.60 * TLMTA | - | 7.88 * EXRETAVG | + | 1.55 * SIGMA | - | 0.005 * RSIZE | - | 2.27 * CASHMTA | + | 0.070 * MB | - | 0.09 * PRICE | - | 8.87 |
= | -6.87 |
The Probability of Financial Distress (%) (PFD) was then obtianed by:
PFD | = | 1 | / | (1 + e^(-LPFD)) | * | 100% |
= | 0.10% |
The eight explanatory variables are:
1. NIMTAAVG = Net Income to Market Total Assets
NIMTAAVG | = | Net Income | / | Market Total Assets |
= | Net Income | / | (Market Cap + Total Liabilities) |
*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
TLMTA | = | Total Liabilities | / | Market Total Assets |
3. CASHMTA = Cash to Market Total Assets
For non-financial companies, CASHMTA is measured as:
CASHMTA | = | Cash, Cash Equivalents, Marketable Securities | / | Market Total Assets |
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
RSIZE | = | log (Market Cap | / | Total Market Cap of S&P 500 companies) |
7. MB = Market to Adjusted Book Equity Ratio
MB | = | Market Cap | / | Adjusted Book Equity |
= | Market Cap | / | (Total Stockholders Equity + 0.1 * ( Market Cap - Total Stockholders Equity)) |
8. PRICE
PRICE is measured as the log of the stock price, capped at log(15).
Harrow (NAS:HROW) 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.
Thank you for viewing the detailed overview of Harrow's Probability of Financial Distress (%) provided by GuruFocus.com. Please click on the following links to see related term pages.
Mark L Baum | director, 10 percent owner, officer: Chief Executive Officer | C/O IMPRIMIS PHARMACEUTICALS, INC, 12264 EL CAMINO REAL, SUITE 350, SAN DIEGO CA 92130 |
Opaleye Management Inc. | 10 percent owner | ONE BOSTON PLACE, SUITE 2600, BOSTON MA 02108 |
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Lindstrom Richard L Md | director | 2811 WESTWOOD PL, WAYZATA MN 55391 |
Perry J. Sternberg | director | 102 WOODMONT BLVD., SUITE 610, NASHVILLE TN 37205 |
Teresa Sparks | director | 40 BURTON HILLS BOULEVARD SUITE 500, NASHVILLE TN 37215 |
Robert J Kammer | director, 10 percent owner, officer: Chairman of the Board | 1440 28TH STREET, SUITE 9, BOULDER CO 80303 |
Longboard Capital Advisors, Llc | other: Institutional Investor | 9665 WILSHIRE BLVD., SUITE 430, BEVERLY HILLS CA 90212 |
Brett Conrad | other: Managing Mbr of Longboard Cap. | 1312 CEDAR ST., SANTA MONICA CA 90405 |
Clayton D Edwards | officer: Chief Operating Officer | 12264 EL CAMINO REAL, SUITE 350, SAN DIEGO CA 92130 |
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Donald Paul Miloni | 10 percent owner | 1425 GREENWOOD LANE, GREENWOOD VILLAGE CO 80125 |
John P. Saharek | officer: Chief Commercial Officer | 12264 EL CAMINO REAL, SUITE 350, SAN DIEGO CA 92130 |
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