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Apr 21 • 5 tweets • 3 min read
Did you know there's a measurement that can predict whether a business will go bankrupt or not in the next 2 years?

It's called Altman’s Z-score Model.

The lower the Z-score, the higher the odds that a company is heading for bankruptcy.

A Z-score that is lower than 1.8 means
that the company is in financial distress and has a high probability of bankrupcy.

A score of 3 and over means the company is in a safe zone and is unlikely to file.

A score between 1.8 & 3 means the company is in a grey area and with a moderate chance of filing for bankruptcy.
Confusing but here's the formula👇

ζ = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Zeta (ζ) is the Z-score

A is the Working Capital/Total Assets ratio

B is the Retained Earnings/Total Assets ratio

C is the Earnings Before Interest and Tax/Total Assets ratio

D is the Market Value of Equity/Total Liabilities ratio

E is the Total Sales/Total Assets ratio
corporatefinanceinstitute.com/resources/know…

Read this if you really want to learn it all.

#zscore #Stock #StockMarket #Stocks #investing #InvestingTips #ShadowInvestor

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More from @shdwinvestor

ShadowInvestor™ Profile picture
Apr 22
Read this about Bitcoin Mining, the network's block rewards & issuance rate.

I did these calculations which took some time. A retweet would be much appreciated😂

90% of the Total BTC has been mined and the last Bitcoin is expected to be mined in the year 2140.
What is Bitcoin Mining?

Bitcoin mining is how new coins come in circulation. It's also how our transaction on the BTC network are verified.

As the Bitcoin blockchain uses the Proof-of-Work consensus algorithm, Mining is done by solving a complex computational math problem.
No advanced math is really involved. What miners are actually doing is trying to be the first miner to come up with a 64-digit hexadecimal number (a "hash") that is less than or equal to the target hash.

It's basically guesswork.

It's hard as there's over a trillion guesses.
Read 10 tweets
ShadowInvestor™ Profile picture
Apr 12
A quick thread on Diversification.

Diversification is a strategy allowing investors to manage risk by spreading their money across different investments.

Investors should have some money allocated to safety assets like cash and bonds in addition to riskier assets like stocks.
Any investor looking for a quick and easy way to help manage risk and potentially boost returns on their portfolio, should take a moment to consider how diversification could work in their portfolio.
Even a fairly aggressive investor likely should still have some cash on the side, whether that's for short-term spending or emergencies, or to deploy for investing in the future.

Likewise, when it comes to one's stock holdings, how well diversified is the portfolio?
Read 10 tweets
ShadowInvestor™ Profile picture
Apr 11
A quick thread on Asset Allocation

Asset Allocation is an essential component of anyone's investment journey!

Fancy translation; asset allocation is the breakdown of different investments in the categories known as asset classes. Stocks, bonds, cash are different asset classes.
Within each asset class, there are more breakdowns that categorize each investment like market capitalization, sectors, geographical locations etc. etc.

But in practicality, asset allocation is to diversify depending on an investor's risk tolerance.
Each asset class has anticipated risk and return based on historical averages.

Based on how much risk an investor is willing to take, a portfolio can be broken down within several categories to provide diversification and balance.
Read 9 tweets
ShadowInvestor™ Profile picture
Apr 7
Quick thread on Price-to-Rent Ratio?

The price-to-rent ratio can be helpful for gauging whether or not an area is “fairly” priced, or if it’s in bubble territory.

To determine the price-to-rent ratio in a given area, divide the median home price by the median annual rent.
Generally, a price-to-rent ratio higher than 21 means it’s cheaper to rent in that area.

As of 2019, the price-to-rent ratio in San Francisco is over 50, the highest in the US.
For every $1,000 you’d spend in rent, you’d have to pay $601,362 to buy something comparable.
e.g. a place that rents for $4,000/mo. would cost roughly $2.4M to buy.

At that rate, it’s cheaper to rent than to own, as the estimated monthly mortgage payment would be around $10,000.
Read 7 tweets
ShadowInvestor™ Profile picture
Apr 5
What is value investing?

Value investing is a long-term investment strategy used by investors to seek out stocks that are trading for less than their intrinsic or book value.
Just like online shoppers keep tabs on their favourite items and buy them when they go on sale, value investors track down stocks they think are being undervalued by the stock market.

Investors analyse and use various metrics to find the right valuation of the stock.
They believe the market overreacts to good and bad news that result in stock price movements disproportionate to the company’s long-term fundamentals.

This offers them an opportunity to buy stocks at a discounted rate.
Read 4 tweets
ShadowInvestor™ Profile picture
Mar 20
Thread on Short Selling.

Short selling is what investors do when they want to bet against a stock.

It’s the opposite of a long position (where they bet the value of the stock to go up over time).

So how do you make money on a failing company?

Take this fictitious example:
Shadow thinks the value of drug company ShadowPharma is overinflated, and that it will soon report that it's trials for its new drug were a failure.

Shadow approaches institutional investor Shadow Capital, which owns ShadowPharma stock to borrow 1 million of their shares.
Shadow Capital agrees, and charges Shadow a monthly fee of $5 million until he returns the shares.

Shadow takes ShadowPharma's shares and immediately sells them for the going rate of $100 each, depositing $100 million in his account.
Read 10 tweets

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