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Probability of Financial Distress (%) measures the probability that a company will go bankrupt in the upcoming year given its current financial position. A higher ratio indicates a larger probability of bankruptcy for the company, while a lower ratio indicates a healthier fundamental. As of today, Lipocine's Probability of Financial Distress (%) is 0.01%.
Like the Altman Z-Score, the PFD measures a company's bankruptcy risk. However, the main drawback of the Z-score is it does not apply to banks and insurance companies. According to Investopedia, the concept of "working capital" does not apply to banks and insurance companies, as financial institutions do not have typical current assets or current liabilities like inventories or accounts payable.
For the Biotechnology subindustry, Lipocine's Probability of Financial Distress (%), along with its competitors' market caps and Probability of Financial Distress (%) data, can be viewed below:
* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.
For the Biotechnology industry and Healthcare sector, Lipocine's Probability of Financial Distress (%) distribution charts can be found below:
* The bar in red indicates where Lipocine's Probability of Financial Distress (%) falls into.
Probability of Financial Distress (%) (PFD) was developed by John Campbell, Jens Hilscher and Jan Szilagyi in their Search of Distress Risk. It measures the probability that a company will go bankrupt within the next 12 months given its current financial position.
The Probability of Financial Distress (%) was obtained by a logit probability model based on eight explanatory variables. The logit formula to compute the probability of financial distress (LPFD) is given below:
LPFD | = | -20.12 * NIMTAAVG | + | 1.60 * TLMTA | - | 7.88 * EXRETAVG | + | 1.55 * SIGMA | - | 0.005 * RSIZE | - | 2.27 * CASHMTA | + | 0.070 * MB | - | 0.09 * PRICE | - | 8.87 |
= | -9.06 |
The Probability of Financial Distress (%) (PFD) was then obtianed by:
PFD | = | 1 | / | (1 + e^(-LPFD)) | * | 100% |
= | 0.01% |
The eight explanatory variables are:
1. NIMTAAVG = Net Income to Market Total Assets
NIMTAAVG | = | Net Income | / | Market Total Assets |
= | Net Income | / | (Market Cap + Total Liabilities) |
*Note that for companies reported quarterly, geometrically declining weighted quarterly Net Income data in latest four quarters are used.
2. TLMTA = Total liabilities to Market Total Assets
TLMTA | = | Total Liabilities | / | Market Total Assets |
3. CASHMTA = Cash to Market Total Assets
For non-financial companies, CASHMTA is measured as:
CASHMTA | = | Cash, Cash Equivalents, Marketable Securities | / | Market Total Assets |
4. EXRETAVG = Excess Return compared to the S&P 500
EXRETAVG is the weighted excess return compared to the S&P 500 in past 12 month. Geometrically declining weights are imposed on the monthly excess return to reflect lagged information. The weight is halved each quarter.
5. SIGMA = Standard Deviation of Daily Returns
For sigma, we use the annualized standard deviation of a company's returns over the past 92 days (or 63 trading days).
6. RSIZE = Relative Size
RSIZE | = | log (Market Cap | / | Total Market Cap of S&P 500 companies) |
7. MB = Market to Adjusted Book Equity Ratio
MB | = | Market Cap | / | Adjusted Book Equity |
= | Market Cap | / | (Total Stockholders Equity + 0.1 * ( Market Cap - Total Stockholders Equity)) |
8. PRICE
PRICE is measured as the log of the stock price, capped at log(15).
Lipocine (NAS:LPCN) Probability of Financial Distress (%) Explanation
Like the Altman Z-Score, the PFD measures a company's bankruptcy risk in the upcoming year. However, the main drawback of the Z-score is it does not apply to banks and insurance companies. According to Investopedia, the concept of "working capital" does not apply to banks and insurance companies, as financial institutions do not have typical current assets or current liabilities like inventories or accounts payable.
Thank you for viewing the detailed overview of Lipocine's Probability of Financial Distress (%) provided by GuruFocus.com. Please click on the following links to see related term pages.
Mahesh V. Patel | director, officer: President and CEO | C/O LIPOCINE, INC., 675 ARAPEEN DRIVE, STE. 202, SALT LAKE CITY UT 84108 |
Richard Dana Ono | director | 18 SPRING ROAD, CONCORD MA 01742 |
Spyridon Papapetropoulos | director | C/O ADAMAS PHARMACEUTICALS, INC., 1900 POWELL ST., SUITE 1000, EMERYVILLE CA 94608 |
George Nomikos | officer: Chief Medical Officer | 675 ARAPEEN DRIVE, SUITE 202, SALT LAKE CITY UT 84108 |
Krista Fogarty | officer: Principal Accounting Officer | 675 ARAPEEN DRIVE, SUITE 202, SALT LAKE CITY UT 84108 |
Jill M. Jene | director | 932 SOUTHWOOD BLVD., INCLINE VILLAGE NV 89451 |
John W. Higuchi | director | C/O LIPOCINE, INC., 675 ARAPEEN DRIVE, STE. 202, SALT LAKE CITY UT 84108 |
Morgan R Brown | officer: EVP and CFO | 420 CHIPETA WAY, SALT LAKE CITY UT 84108 |
Stephen A Hill | director | 50 AVENUE GENERAL DE GAULLE, BRUXELLES C9 9999999999 |
Jeffrey Arvin Fink | director | 2265 MORNING STAR DRIVE, PARK CITY UT 84060 |
Gregory Brooks Bass | officer: EVP and Chief Commercial Offic | 3228 BROOKSIDE DRIVE, FURLONG PA 18925 |
Jyrki Mattila | officer: Chief Business Officer | AUXILIUM PHARMACEUTICALS, INC., 40 VALLEY STREAM PARKWAY, MALVERN PA 19355 |
Srinivasan Venkateshwaran | officer: CTO and VP RandD | C/O LIPOCINE, INC., 675 ARAPEEN DRIVE, STE. 202, SALT LAKE CITY UT 84108 |
Robert K. Merrell | officer: VP Finance | C/O LIPOCINE, INC., 675 ARAPEEN DRIVE, STE. 202, SALT LAKE CITY UT 84108 |
Gerald T Simmons | officer: VP Corp Business Development | 837 4TH AVE, SALT LAKE CITY UT 84103 |
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