Biffa's weak fundamentals – should investors be concerned?

Biffa's weak fundamentals – should investors be concerned?

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Business distress and bankruptcy can put a dent in your portfolio no matter how well diversified you are.

That's why paying attention to simple checklists that flag up risky stocks is so important. Stockopedia provides many of these screening tools to help investors safely navigate the stock markets. One of them - the Altman Z-Score - was found to be:

  • 72% accurate in predicting bankruptcy two years prior to the event in its initial test
  • 80-90% accurate in predicting bankruptcy one year before the event in the 31 years up until 1999

That's quite the vote of confidence. The Z-Score was developed by New York University finance professor and leading academic, Edward I. Altman. It measures how closely a firm resembles other firms that have filed for bankruptcy by considering the following areas:

  • Current assets as a proportion of total assets,
  • Cumulative profitability and use of leverage,
  • Productivity of assets, and
  • Firm value compared to liabilities

A Z-Score of more than 2.99 is considered to be a safe company. Those with a Z-Score of less than 1.8, on the other hand, have been shown to have a significant risk of financial distress within two years. We can see the checklist in action by applying it to a listed company. Take mid cap style neutral Biffa (LON:BIFF), for example – a waste management business.

How does Biffa fare against Altman’s influential checklist?

What does the Altman Z-Score flag up about Biffa?

Unfortunately, Biffa fails Altman’s test, with a worryingly low Z-Score of  1.20...

Biffa's low Z-Score doesn't mean that it is definitely heading for financial distress, but it does mean this fate is more of a risk for Biffa than it is for most.

To find specifically why our algorithms ranked Biffa at 1.20, please view its StockReport here.


Next Steps

To find more stocks like Biffa, you'll need to equip yourself with professional-grade data and screening tools to pinpoint the highest quality companies in the market. This kind of information has traditionally been closely guarded by professional fund managers. But our team of financial analysts have carefully constructed this screen - which gives you everything you need.

In less than a minute, you can be exploring a list of stocks with the very strongest financial ratios in the market. You'll be joining us on a journey towards owning the very best quality stocks possible. So what are you waiting for? Come and get started for free.


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