I was taking some interest in LON:WPP but noticed it entered the Altman Z screen in June 2015. What was most striking is to compare the notion that a company that matched the criteria set out by Altman in 1968 being 72% likely to fold in the next two years against the chart of actual performance over the last two years. It made me wonder how successful shorting would have been within that time.
I realise that this is not a precise science by any means and that it may not be possible to alter the classic levels that Altman set, however misleading or inadequate they may be. However, I wondered if it might be reasonable to create a modern screen similar to the Altman but, perhaps, taking some extra consideration of its relative relevance to the different sectors and, perhaps also deriving value from how such a prediction actually panned out in reality.
My question for all who are interested in screens is this. If you care about the Z score at all, how would you tweak it, knowing what you now know?
The low Z score highlights two things about WPP that are worth trying understand.
1. It has negative Working Capital.
2. It has huge liabilities, greater than it's market capitalisation.
In a small manufacturing company both of these would represent a risk. Is that true for a large media company?
