Altman Z score fails major casinos

TAGs: Altman Z score, bankruptcy, Casino operators

Just a little background for those who don’t know what the hell an Altman Z score is, its a formula developed way back in 1968 by New York University professor, who you can guess was named Altman. By assessing the financial health of a company, this formula was used to predict the probability of a company going bankrupt. The most interesting part to note is that since the inception of this formula, its been operating at a 72% accuracy clip in predicting corporate bankruptcies two years prior to the filing, that’s what they call way better than fluke and a little shy of infallible.

The Altman Z score is generally broken down to companies that receive a score of 3 or higher are safe while those companies with a score of 1.8 or lower are considered in deep shit. What should be disturbing to the casino industry and to many investors is that according to TheStreet, eight casino operators with a market cap of over $200 million have score below 3 and seven of the eight are in the deep shit zone with a score lower than 1.8.

Of course, this doesn’t mean that the casino sector is crumbling as many casino operators have received a score lower than 1.8 in the past and have survived, but it does raise a seed of doubt in the minds of investors, particularly with the slew of bankruptcy filings over the course of the past several years which included Station Casinos, Trump Entertainment and Tropicana Entertainment. Judging from the following eight casinos and their Altman Z scores certain companies are significantly more riskier than others and certainly the operators expanding into Asian territories like Macau and Singapore are hoping these markets start to pay off very soon.


views and opinions expressed are those of the author and do not necessarily reflect those of