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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, James River Group Holdings's Probability of Financial Distress (%) is 0.16%.
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 Insurance - Specialty subindustry, James River Group Holdings'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 Insurance industry and Financial Services sector, James River Group Holdings's Probability of Financial Distress (%) distribution charts can be found below:
* The bar in red indicates where James River Group Holdings'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 |
= | -6.42 |
The Probability of Financial Distress (%) (PFD) was then obtianed by:
PFD | = | 1 | / | (1 + e^(-LPFD)) | * | 100% |
= | 0.16% |
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 insurance companies, CASHMTA is measured as:
CASHMTA | = | (Balance Sheet Cash And Cash Equivalents + Short-term investments) | / | 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).
James River Group Holdings (NAS:JRVR) 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 James River Group Holdings's Probability of Financial Distress (%) provided by GuruFocus.com. Please click on the following links to see related term pages.
Dennis J. Langwell | director | C/O LIBERTY MUTUAL GROUP, 175 BERKELEY STREET, BOSTON MA 02116 |
Matthew Botein | director | 141 FRONT STREET, HAMILTON D0 HM19 |
Gallatin Point Capital Llc | director | 660 STEAMBOAT ROAD, GREENWICH CT 06830 |
Gpc Partners Investments (thames) Lp | director | 660 STEAMBOAT ROAD, GREENWICH CT 06830 |
Lewis A Sachs | director | 660 STEAMBOAT ROAD, GREENWICH CT 06830 |
Gpc Partners Ii Gp Llc | director | 660 STEAMBOAT ROAD, GREENWICH CT 06830 |
Thomas Lynn Brown | director | 8750 W. BRYN MAWR, SUITE 1300, CHICAGO IL 60631 |
Gould Kirstin Romann | director | C/O JAMES RIVER GROUP HOLDINGS, LTD., WELLESLEY HOUSE, 90 PITTS BAY ROAD, PEMBROKE D0 HM 08 |
Peter B. Migliorato | director | 3401 NORTH OCEAN, NORTH 301, PALM BEACH FL 33480 |
Patricia H Roberts | director | C/O THE NAVIGATORS GROUP, INC., 400 ATLANTIC STREET, 8TH FLOOR, STAMFORD CT 06901 |
Sherman Ollie L. Jr. | director | C/O JAMES RIVER GROUP HOLDINGS,LTD., WELLESLEY HOUSE, 90 PITTS BAY ROAD, PEMBROKE D0 HM 08 |
Janet Raye Cowell | director | C/O COOLEY LLP, 11951 FREEDOM DRIVE, SUITE 1600, RESTON VA 20190 |
Sundar Srinivasan | director | C/O JAMES RIVER GROUP HOLDINGS, LTD., 90 PITTS BAY ROAD, PEMBROKE D0 D0 HM 08 |
Sarah C. Doran | officer: Chief Financial Officer | C/O JAMES RIVER GROUP HOLDINGS, LTD., WELLESLEY HOUSE, 90 PITTS BAY ROAD, PEMBROKE D0 HM 08 |
Richard Schmitzer | officer: Pres. & CEO - E&S Lines Sgmt | C/O JAMES RIVER GROUP HOLDINGS, LTD., 90 PITTS BAY ROAD, PEMBROKE D0 D0 HM 08 |
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