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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, Pepco Holdings's Probability of Financial Distress (%) is 0.00%.
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 Utilities - Regulated Electric subindustry, Pepco Holdings'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 Utilities - Regulated industry and Utilities sector, Pepco Holdings's Probability of Financial Distress (%) distribution charts can be found below:
* The bar in red indicates where Pepco Holdings'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 |
= | 0.00 |
The Probability of Financial Distress (%) (PFD) was then obtianed by:
PFD | = | 1 | / | (1 + e^(-LPFD)) | * | 100% |
= | 0.00% |
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).
Pepco Holdings (NYSE:POM) 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 Pepco Holdings's Probability of Financial Distress (%) provided by GuruFocus.com. Please click on the following links to see related term pages.
Laura L. Monica | officer: VICE PRESIDENT | 1025 LAUREL OAK ROAD, VOORHEES NJ 08043 |
Joseph M Rigby | director, officer: CHAIRMAN, PRESIDENT AND CEO | SOUTH JERSEY INDUSTRIES, 1 SOUTH JERSEY PLAZA, FOLSOM NJ 08037 |
Terence C Golden | director | BAILEY CAPITAL CORPORATION, SUITE 601, 1156 - 15TH STREET, NW, WASHINGTON DC 20005 |
David M Velazquez | officer: EXECUTIVE VICE PRESIDENT | CONECTIV ENERGY, 500 N WAKEFIELD DRIVE, NEWARK DE 19702 |
Lawrence C Nussdorf | director | CLARK ENTERPRISES, INC., 7500 OLD GEORGETOWN RD., 15TH FLOOR, BETHESDA MD 20814-6195 |
Dunn Jack B Iv | director | 500 EAST PRATT STREET, C/O FTI CONSULTING, INC., BALTIMORE MD 21202 |
Patricia A. Oelrich | director | 62 ETTL CIRCLE, PRINCETON NJ 08540 |
Paul M Barbas | director | C/O DPL INC., 1065 WOODMAN DRIVE, DAYTON OH 45432 |
Patrick T Harker | director | C/O GOLDMAN SACHS HEDGE FUND STRATEGIES, 32 OLD SLIP, 9TH FLOOR, NEW YORK NY 10005 |
Frank K Ross | director | 1115 30TH STREET NW, WASHINGTON DC 07002 |
George F Maccormack | director | PEPCO HOLDINGS, INC., 701 NINTH STREET, NW, SUITE 1300, WASHINGTON DC 20068 |
Dennis R Wraase | director, officer: Chairman of the Board | C/O NORTHEAST UTILITIES, 300 CADWELL DRIVE, SPRINGFIELD MA 01104 |
Paul H Barry | officer: Sr. VP & CFO | 701 NINTH STREET NW, WASHINGTON DC 20068 |
Thomas S Shaw | officer: Exec. VP & COO | C/O CONECTIV, 800 KING ST PO BOX 231, WILMINGTON DE 19899 |
Cronin Edmund B Jr | director | WRIT, SUITE 800, 6110 EXECUTIVE BOULEVARD, ROCKVILLE MD 20852 |
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