Credit has been on the move, along with equities. Equities alone were never going to be enough to sway the Fed but equities + credit = another story.

Father of Z-Score Expects Bigger Bankruptcies in Next Downturn

Edward Altman, who developed the Z-score method for predicting bankruptcies 50 years ago, says the next recession will be characterized by many more bankruptcies and defaults than in previous downturns, and the corporate failures will be larger than ever before.

Altman spoke with Katherine Doherty on Oct. 29, and comments have been edited and condensed. He developed the Z-score model in 1968 and is now professor emeritus at New York University’s Stern School of Business.

What did the early Z-score model look like?

When the model was first published, we talked about the score and

three ranges: the safe zone, grey zone and distressed zone. If you were in the distressed zone 50 years ago, you almost always went bankrupt within two years. These scores involved five financial variables measuring liquidity, solvency, profitability, leverage and activity of a firm’s most recent performance.

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