Does Sophos (LON:SOPH) have enough liquid assets?

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

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 large cap high flyer Sophos (LON:SOPH), for example.

How does Sophos fare against Altman’s influential checklist?

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

Unfortunately, Sophos fails Altman’s test with a Z-Score of 1.78...

Sophos'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 Sophos than it is for most.

Specifically, our algorithms flag the following liquidity risk:

Next Steps

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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.