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You're missing the point.
The Altman Z-Score has a high accuracy rating without the benefit of any inside information -- it just uses data from the 10-K and 10-Qs. If you paid attention to the warning the Altman Z-Score model gave for VBDG, you wouldn't have been so surprised by today's news.
The Altman Z-Score Takes into account VBDG's inventory
Inventory is part of total assets and figures into net working capital (which is *negative* for VBDG) and still shows VBDG at a high risk of bankruptcy in two years.
Brig, still believe VBDG is not in danger of bankruptcy,
And that the Altman Z-Score model is crap?
VBDG's new product: My Place Bankruptcy?
I warned you, didn't I? The Altman Z-Score has been shown to be between 72%-80% accurate in predicting bankruptcy within two years.
That's not using the Altman Z-Score model.
Cherry-picking a company's worst quarter (even if it happens to be the most recent quarter) and annualizing it is your own made-up method. The Altman Z-Score model has a 72%-80% accuracy rate over decades of use. That history surely includes its use on companies where the most recent quarter had a steep drop-off in earnings, as AYSI did.
Your made-up method has no such accuracy record because you just made it up.
The Altman Z-Score for VBDG shouldn't be surprising.
Look at the company's most recent balance sheet data, for starters.
Setting aside the company's inventory, which would have to be sold at a massive discount in a distress situation, here are VBDG's current assets:
Cash: $145,000
Net Receivables: $5,769,000
Other: $503,000
__________
Total: $6,417,000
And here are its current liabilities:
Accounts Payable: $4,084,000
S/C LT Debt: $8,016,000
__________
Total: $12,000,000
Subtracting VBDG's current liabilities from its current assets ex-inventory gives a liquid working capital deficit of -$5,583,000.
Maybe VBDG will able to scrape together $5.5 million this quarter, but it makes sense that the Altman Z-Score would show a high probability of bankruptcy within the next two years at this point.
Pay attention to the four ratios used
In the version of the Altman Z-Score Model for non-manufacturing companies:
T1 = Working Capital / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Market Value of Equity / Total Liabilities
Of those four ratios, note that "Total Assets" is in the denominator of three of the four.
In light of your new-found interest in the Altman Z-Score model, you may be interested in reading this paper written in 2000 by Altman himself: http://pages.stern.nyu.edu/~ealtman/Zscores.pdf
-2544.
Run the numbers yourself.
That's why I gave you the link. I wouldn't have guessed how bad the revised Altman Z-Score for VBDG would be until I ran it myself, but it makes intuitive sense that the company would be at risk of bankruptcy. It has negative working capital, it has been losing money for the last four quarters at least, and it has a lot of debt. The Altman Z-Score model takes that all into account.
Revised Calculation of the Odds VBDG Bankruptcy
The Altman Z-Score calculator at Ironwood Advisory enables you to select for non-manufacturing ("other") publicly-traded companies. Using that calculator, I got an Altman Z-Score of -2,544. Along with the score came this message:
Your Z score is in the low range. The Z score test predicts bankruptcy. We recommend contacting Ironwood Advisory for assistance in interpreting the Z score and improving your company's financial health. Smaller firms should note that these models are based on data from firms with assets in excess of $1,000,000. If it is believed that asset size affects Z scores, then their use may not be appropriate.
Of course, VBDG has over $1 million in assets.
Here's the site of the calculator if you'd like to run the numbers yourself. Be sure to put a minus sign before the numbers for EBIT, Working Capital, and Retained Earnings: http://www.ironwoodadvisory.com/zscore.htm
Calculating the odds of VBDG going bankrupt.
It turns out that there is a model to predict the chances of a company going bankrupt within the next two years. This model is about 72% accurate. It's called the Altman Z-Score. A score below 1.8 means bankruptcy is likely within the next two years; a score between 1.8 and 2.99 is a gray area; and a score above 2.99 means the company is in good financial health and bankruptcy is unlikely in the next two years.
I just ran that calculation for VBDG. Its Altman Z-score is 0.19.
Don't believe me? Run the numbers for yourself here (be sure to put a minus sign before the EBIT and Retained Earnings numbers): http://www.creditguru.com/CalcAltZ.shtml
What are the chances of AYSI going bankrupt?
It turns out that there is a model to predict the chances of a company going bankrupt within the next two years. This model is about 72% accurate. It's called the Altman Z-Score. It was initially designed for manufacturing companies with $1 million+ in assets (a category in which AYSI obviously belongs). A score below 1.8 means bankruptcy is likely within the next two years; a score between 1.8 and 2.99 is a gray area; and a score above 2.99 means the company is in good financial health and bankruptcy is unlikely in the next two years.
I just ran that calculation for AYSI. Its Altman Z-score is 4.89. More details here: http://thehackensack.blogspot.com/2009/03/using-altman-z-score-to-calculate-risk.html
VBDG: High likelihood of bankruptcy
It turns out that there is a model to predict the chances of a company going bankrupt within the next two years. This model is about 72% accurate. It's called the Altman Z-Score. A score below 1.8 means bankruptcy is likely within the next two years; a score between 1.8 and 2.99 is a gray area; and a score above 2.99 means the company is in good financial health and bankruptcy is unlikely in the next two years.
I just ran that calculation for VBDG. Its Altman Z-score is 0.19.
Z-SCORE BELOW 1.80- Probability of Financial embarassment is very high.
Don't believe me? Run the numbers for yourself here (be sure to put a minus sign before the EBIT and Retained Earnings numbers): http://www.creditguru.com/CalcAltZ.shtml
I had an order in closer to the bid.
Didn't get filled, but I left the order open.
On day with some volume like today
Getting a fill on a small all-or-none buy at .29 wasn't hard.
OK. My broker charges another commission if a limit order takes more than one day to fill.
If you're only filling in 100 share increments, what's your average cost on these shares, taking into account commissions? I'm guessing it's in the .30s.
The tape painting was obviously
at .24 and .43. It works both ways, as you know. Do you have a 100 share order ready at the bid for the close?
That was pretty funny.
Here's my little table-pounder: ASUR.
The company is planning a 1-750 reverse split as part of its process of going private. It plans to cash out fractional shares at .36 per share. Current share price is .18. So what I'm doing is buying 749 shares in each of several different accounts.
I went into more detail on this on my site: http://thehackensack.blogspot.com/2009/02/penny-ante-arbitrage.html
Maybe I'll send Gene a resume.
Picked up a little more at .361 today.
Sorry, LF
I haven't been checking in here that frequently so I'm just getting around to responding. I agree that the balance sheet is worth keeping an eye on. I'd be more comfortable if the company built up more of a cash cushion. I wouldn't expect or want them to pay a dividend at this point though. Better to put that money toward hiring a high-level salesman who can expand the company's business.
My guestimate was .01, if the finished goods number on the 10-k represented sales hitting in Q1. If not, then maybe a break-even quarter or a small loss.
Assuming the finished goods represent Q1 sales (admittedly, a big assumption), figuring a 40% profit margin on them, and then assuming that AYSI's net income equals about 18% of revenue (the case for fiscal '08), I get an estimate of ~$192k, or about 1 cent per share.
Heads up to those sending me private messages:
I'm not a premium member, so I won't be able to respond privately. And I probably won't be responding publicly here either. You are welcome to leave me a message on my site if you like, where you are free to discuss AYSI or any other stock: http://www.thehackensack.blogspot.com/
Thanks.
Let's make it whichever stock hits $1 first.
It's not as hard for a no-volume, 18 cent stock to double.
You are now claiming that you never compared AYSI invidiously to a money-losing, debt-laden retail company?
I have no problem with anyone bringing up negative points about AYSI. It's clearly facing challenges and uncertainty, as are a lot of other companies in this environment. But when you compare its short-term financial situation invidiously to a company with 4x its short-term debt and less than 1/4th its cash, that demonstrates your dishonesty.
You're the one who brought up the other company.
I hadn't even heard of it before you mentioned it. You are the one who claimed that AYSI was in worse financial shape over the next few months than a money-losing company with 4x as much short-term debt as AYSI and less than 1/4th AYSI's cash.
AYSI's $2.9 million in short-term liabilities is mostly offset by its $2.3 million in net receivables*. That leaves it with $600k in short-term liabilities not offset by net receivables, versus $667k in cash.
Your retailer, on the other hand, has $12 million in short-term liabilities offset by only $5.8 million in net receivables. That leaves it with $6.2 million in short-term liabilities not offset by net receivables, versus a paltry $135k in cash.
*AYSI's management has every confidence that it will actually be paid these receivables. As management noted in its last 10k:
" We do not believe there is a need for a provision for doubtful accounts as of September 30, 2008. The directors have reached this conclusion notwithstanding the current economic climate by having regard to the company’s credit criteria and quality of clients. "
Is your retailer as confident about getting paid on its receivables?
Can you please explain why AYSI, which has a working capital surplus of $1.4 million, is in worse financial shape than a certain money-losing retail stock you've been flogging that has a working capital deficit of $3.6 million?
I'd be happier if AYSI had more net cash on its balance sheet, and you could make an argument that an investor would take on less risk in a company with large hoard of net cash, but the idea of comparing AYSI invidiously to a money-losing company that's wracked with debt (including $12 million in current liabilities) is ridiculous.
Weak balance sheet + weak sector (retail) + money losing company = VBDG.
Why invest in a money-losing company with a working capital deficit of $3.6 million, in a weak sector (retail) during a credit crisis and global recession?
Looks too risky right now. Why not wait to see if this company turns a profit before investing?
There's a third possibility, which I think is more likely: the finished goods number for the third quarter was realized as sales in Q4, and isn't the same finished goods that showed up on Q4. In other words, the finished goods on the books in Q3 were shipped in Q4 and at the end of Q4 there was another batch of finished goods on the books.
The question now re those finished goods is this: is it a similar situation as Q3, where these finished goods will show up as sales in 1Q09, or are these finished goods the result of an order that has been delayed for more than one quarter or canceled.
What's "wrong", Rawnoc?
You are the one who brought up the comparison of short-term liabilities to cash (ignoring net receivables for some reason), claiming that AYSI "could be in real trouble over night literally since they have $2.9 million in short-term liabilities and $667,000 in cash."
And then when I look up the same stats for VBDG I find that it has four times AYSI's short-term liabilities and less than one fourth AYSI's cash.
If you were being honest, and not cherry-picking data, you'd admit that by the same metrics you used to claim AYSI could be "in real trouble over night" (cash versus short-term liabilities), VBDG is in much worse shape.
"AYSI could be in real trouble over night literally since they have $2.9 million in short-term liabilities and $667,000 in cash."
In comparison, VBDG has $12 million in short-term liabilities and $145,000 in cash.
You may be right...
...about the prospects of VBDG, but in this market, why risk buying a debt-laden, money-losing company? I feel better owning AYSI, a profitable company with net cash trading at ~3.5x its trailing earnings. Prospective investors are probably better off waiting for VBDG to turn a profit, which would provide support for your investment thesis. Considering that VBDG dropped almost 40% today, it's likely the stock won't run away from us after its first profitable quarter.
In the current recession, one of the few sources of aggregate demand will be government spending. Much of that government spending -- in China, the U.S., and elsewhere -- will be on infrastructure. Infrastructure requires steel, steel requires iron ore, and Alloy Steel sells a product that makes iron miners more efficient and saves them money.
Regarding the prospects of a "picks & shovels" business such as Alloy Steel's during a steep correction in the prices of mined commodities, I am reminded of a recent article in the Financial Times ("Engineers feel impact of cancelled projects"). In that article, the reporter asked the CEO of the British conveyor belt manufacturer Fenner about the impact of the decline in commodity prices. This was the CEO's response:
“Conveyer belts carry materials based on volume and tonnage. If you are producing a commodity, we are driven by volume, not its price,” says Mark Abrahams, chief executive of Fenner.
Of course, if the price of a commodity drops far enough, i.e., below its cost of production, production volume will plummet, but above that price point, a picks & shovels business such as Fenner or Alloy Steel International ought to be less sensitive to fluctuations in price of the underlying commodity.
That said, I'm not expecting AYSI to do better in '09 than it did in '08 (if it does, I'll be pleasantly surprised). I consider AYSI attractive at these prices based on its longer-term prospects.
They are focusing exclusively on Arcoplate now. My point was that the 3-D cladding process is an example of the company's potential to grow sales in the future. Think about it: if you're in charge of procurement for a mining company and you're sold on the benefits of Arcoplate wear plates, how hard would it be to sell you on getting the same wear protection and hang up minimization benefits for your pipes and chutes?
Thanks, Raw.
I have to get some shut-eye now, but I'll look forward to reading those posts tomorrow. I know EGMI is liked by some other folks here on the AYSI board, but the other two I don't recognize immediately.
My two cents:
The investment thesis for Alloy Steel, in a nutshell, is that they appear to have invented a better mousetrap, at least judging by their product's adoption by some blue chip mining companies in Australia. If AYSI's product makes sense for miners in Australia, it ought to make sense for miners in Brazil, Chile, Canada, the U.S., etc. That means there is growth potential for Arcoplate in those markets.
Additionally, if Alloy Steel penetrates those markets, it can then expand into selling its 3-D cladding process, which is essentially applying the equivalent of Arcoplate to the inside of pipes and chutes used in processing ore.
Also, if Arcoplate makes sense for miners in reducing wear and hang up, it ought to make sense for equipment used in excavation, construction, etc.
That said, I have no idea what Alloy Steel's prospects are over this year. I'd be happy if it just stays profitable. This is going to be an awful year for a lot of companies, due to the global recession. But a product that can increase efficiency and reduce wear and expensive repairs ought to be able to get some traction even in a crappy market. Long term, I'm more bullish on the company.
"applaudable (?)"
The word you were looking for is "laudable".