How to spot if a company is in trouble

Good investors try to keep their risks low, and one of the biggest risks you can take is to invest in a company with dodgy finances. So how can you avoid the financial basket cases? One option is to use the Altman Z-Score.

Back in the late 1960s, Edward Altman, a professor of finance at New York University, set about finding a way to predict which companies were heading for bankruptcy. He studied lots of non-financial companies and crunched 22 different financial ratios with numbers taken from the companies’ accounts.

What he came up with was a formula [...]

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