11 E.I.Altman,“FinancialRatios,DiscriminantAnalysisand
thePredictionofCorporateBankruptcy,”JournalofFinance
(1968);foramoreupdatedversionoftheAltmanZ-Scoreand
itsrelationshiptodefaultprobabilities,seeE.I.Altmanand
Edith Hotchkiss, Corporate Financial Distress and
Bankruptcy, 3rd ed., (Hoboken, NJ: John Wiley & Sons,
2006).
12 Thislookslikeamultipleregression.Infact,aprobitisa
moresophisticatedversionofthisregressionwithconstraints
builtinensuringthattheprobabilitiesdonotexceedoneor
become negative.
13 Cashburn ratio=Cashbalance/EBITDA. Withnegative
EBITDA,thisyieldsameasureofthetimethatitwilltakethe
firm to burn through its cash balance.
14 E.I.AltmanandV.Kishore,“TheDefaultExperienceof
U.S. Bonds,” working paper, Salomon Center, 2001.
15 TheyestimatetheprobabilityofdefaultonlyforAAA,AA,
A,BBB,BB,B,andCCCbonds.Weinterpolatedtogetthe
rest of the table.
16 Witha10-yearbond,itisa processoftrial anderrorto
estimate this value. The solver function in Excel
accomplishes the same thing in far less time.
17 Although thefinancial statementsfor 2000 hadnot been
released,thetrailing12-monthnumberswereusedformostof
the inputs in November 2001.