Yahoo Finance Here's why the United Utilities share price might be in serious trouble
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 United Utilities (LON:UU.), for example. The Company, through its subsidiary, United Utilities Water Limited (United Utilities Water), manages the regulated water and wastewater network in the North West of England, providing services to around seven million people and businesses
How does United Utilities fare against Altman’s influential checklist?
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What does the Altman Z-Score flag up about United Utilities?
United Utilities gets a Z-Score of 1.49, indicating that caution should be taken when considering this stock. For more information, view its StockReport here with a free trial.
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