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State of car manufacturers according to Altman Z-scores

by Eva Fox December 02, 2019

State of car manufacturers according to Altman Z-scores

What is the Altman Z-score?
Altman Z-score is the result of a test for creditworthiness that measures the likelihood of bankruptcy of a publicly traded manufacturing company. Altman's Z-score is based on five financial ratios that can be calculated based on data found in the company's 10-K annual report. It uses profitability, leverage, liquidity, solvency and activity to predict whether a company has a high probability of insolvency.

A Form 10-K is an annual report required by the U.S. Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company's financial performance. Although similarly named, the annual report on Form 10-K is distinct from the often glossy "annual report to shareholders," which a company must send to its shareholders when it holds an annual meeting to elect directors (though some companies combine the annual report and the 10-K into one document). The 10-K includes information such as company history, organizational structure, executive compensation, equity, subsidiaries, and audited financial statements, among other information.

Breaking Down the Altman Z-Score
One can calculate the Altman Z-score as follows:
Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where:
A = working capital/total assets
B = retained earnings/total assets
C = earnings before interest and tax/total assets
D = market value of equity/total liabilities
E = sales/total assets

Typically, a score below 1.81 indicates that the company is most likely heading for bankruptcy or is under the weight of bankruptcy.

James Stephenson/Twitter found interesting information. According to current Altman Z-scores, per to gurufocus.com, we see next situation:

  • 1.91 Tesla
  • 1.84 Honda
  • 1.77 Toyota
  • 1.38 Nissan
  • 1.35 Fiat Chrysler
  • 1.14 Volkswagen
  • 1.09 Daimler
  • 1.09 GM
  • 0.95 Ford
  • 0.79 BMW
  • -4.36 NIO

As you can see, only two of the automakers represented are located above the critical zone, 1.81. And one of these automakers is Tesla.

From the above information, we can conclude that automakers such as Toyota, Nissan, Fiat Chrysler, Volkswagen, Daimler, GM, Ford and BMW are on the verge of bankruptcy. In support of these findings, we can consider what is happening with large German manufacturers. German automakers getting ready for mass layoffs workers. These companies are currently not able to improve their situation.

Let's look further. We should also focus on the debts of these companies.

According to Montana Septic:

  • VW long term debt = $211billion
  • Toyota’s long term debt = $185 billion
  • Ford’s long term debt = $154 billion
  • GM’s long term debt = $100 billion ( + a $14 billion unpaid bailout loan)
  • Daimler’s long term debt = $106 billion
  • BMW’s long term debt = $127 billion 

At that time, we have Tesla indicators. According to YChartsTSLA’s total long term debt as of September 30, 2019, was precisely $13.34 billion. 

$13.34 billion versus $ 106 billion (and this is the smallest debt presented above was taken as an example). This is really impressive.

Thus, as RandySustainableMeat correctly pointed out, all of the OEMs represented, the giants in the automotive industry, have more debts than they are worth, and their assets will soon become worthless and all these companies are useless.

These are numbers that reflect the real situation. According to Altman Z-score, the company is not in a high-risk zone. Tesla is the only really effective company that is developing and has a growing margin.

To date, Tesla has the largest percentage of short sellers in the US market, about 20%. That is why the company so often becomes a victim of untruthful information. Short sellers benefit when Tesla's stock price drops. But even in such conditions, Tesla proves to us it viability and potential.

I hold no TSLA shares and have no plans to initiate any positions within the next 72 hours.

Featured image: jazelauto




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