Beneish model & Altman score

[Gebura]

Do we need to know these formulas? The LOS are quite obscure. Are you going to learn them (at least their components if not the parameter coefficients)?

 

[Portfolio Manager]

No, and no.

 

[paulian17hotma]

No just the interpretation - Its good to have a low value in Beenish model (less chances of earning manipulation) & its good to have a high value in ALtman - Z score (less probability of default). Correct me if i am wrong.

 

[Mace]

+1
Certainly not. Just, as Paulian said, the interpretation.

 

[Gurifissu]

Just be able to interpret them. I have a mnemotechnic way of remembering how they work:
Beneish and Altman scores get worse as they approach 0. The beneish model indicates a high probability of manipulation when you are higher than the critical value, and the altman score indicates a high probability of default if you’re below the lowest critical value (if you’re in between the test is inconclusive, and if you’re above, no probability of defaulting).

 

[Lostone]

Thanks! Very helpful!