Insights #5: Why assessing corporate distress using our Interest Coverage Ratio and the Altman Z’’-score is revealing
A firm is in distress if its current operations cannot generate the means to meet its interest payments and/or bankruptcy risk is too high. The Crux of Capitalism project generates interest coverage ratios and Altman’s Z’’-scores that, when combined, indicate whether a firm is likely to be in corporate dis-tress. Sorting between viable zombie companies and more destined for failure is possible. This approach could support the development of accurate early warning indicators and, during an era of interest rate normalisation, reduce false alarms about unviable zombie firms.