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Here's why the Imperial Brands share price might be in serious trouble

Michael Green

Paying attention to a few simple checklists can radically improve our risk management. One of these - the Altman Z-Score - was found to be:

  • 72% accurate in predicting bankruptcy two years prior to the event in its initial test
  • 80-90% accurate in predicting bankruptcy one year before the event in the 31 years up until 1999

The Z-Score measures how closely a firm resembles other firms that have filed for bankruptcy by considering the following areas:

  • Current assets as a proportion of total assets,
  • Cumulative profitability and use of leverage,
  • Productivity of assets, and
  • Firm value compared to liabilities

A Z-Score of more than 2.99 is considered to be a safe company. Those with a Z-Score of less than 1.8, on the other hand, have been shown to have a significant risk of financial distress within two years. We can see the checklist in action by applying it to a listed company. Take Imperial Brands (LON:IMB), for example.

How does Imperial Brands fare against Altman’s influential checklist?


What does the Altman Z-Score flag up about Imperial Brands?

Imperial Brands gets a Z-Score of 0.42, indicating that caution should be taken when considering this stock.

To view more information about Imperial's Z-Score, please review its StockReport with a free trial on us.

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