Altman Z score and RBI Kamath committee ratios.

 Edward Altman published the Z score formula for predicting bankruptcy way back in 1968. He said this formula can be judiciously used to find whether any company may go into bankruptcy within the next two years. It is a quick find formula to gauge the financial health for publicly held companies by using the P&L values and Balance sheet values through a mix of business ratios.

In simple terms Z =1.2X1+1.4X2+3.3X3+0.6X4+1.0X5, where

X1= Working capital/Total assets.i.e the ratio of liquid assets in relation to the total assets or size of the Co.

X2=Retained earnings/Total assets i.e the ratio of retained profit in relation to the total assets of the Co.

X3=EBIT/Total Assets i.e the ratio of efficiency of the operations without the impact of leveraging, in relation to the assets deployed in the Co.also signifying the importance of operating earnings for the long term financial health of the Co.

X4=market capitalisation/book value of total liabilities i.e the ratio of market price in relation to the total liabilities incl. borrowings are  considered as a reflection financial health;

X5= Total sales/ Total assets i.e the ratio of assets turnover indicating how well the assets are utilised to generate the sales.

There are some variations for privately held companies and for service cos.

What is the necessity for delving into this formula of bankruptcy now? RBI appointed KV Kamath Committee has come out with similar ratios for the use of banks in identifying distress among the Indian business companies with various ratio values depending on the kind of business the cos concerned are in.

The Committee came out with the following ratios, that were selected based on their relevance for Resolution Plan for the distressed cos. when their loans are put to restructuring by the banks. 

1)Total outside liabilities(TOL)/Adjusted Tangible Networth(ATNW)i.e Adjusted Net of investments;

2)Total Debt/EBIDTA ;

3)Current Ratio;

4)Debt Service Coverage Ratio (DSCR);i.e the ratio of the addition of the net cash accruals with interest and finance charges divided by the addition of the current portion of the long-term debt with interest and finance charges.

5) Average Debt Service Coverage Ratio (ADSCR) i.e average over the loan period.

All these ratios are highly relevant with a well-defined threshold for various industries of the domestic economy including that of services, for those looking at the financial health of the Companies. Many Credit Rating Agencies also use many of these ratios. Perhaps, the Altman Z score may also be included for evaluating the preponderance to bankruptcy among the Co.s  under the distressed category seeking their bank loans to be restructured.

Bacteriophages, Ganges and MIT on fasting.

In 1896, Ernest Hanbury Hankin, a British Bacteriologist, Chemist, came out with a finding that the Indian rivers, Ganges and Jamuna could actually restrict the outbreak of cholera and in fact the waters could destroy the Cholera bacteria. He was the first to detect the bacteriophage activity and its presence in the river waters of Ganges and Jamuna. A startling discovery when the whole world was saying the river waters of Ganges were the most polluted.link. In his own words
"It is seen that the unboiled water of the Ganges kills the cholera germ in less than 3 hours. The same water, when boiled, does not have the same effect. On the other hand, well water is a good medium for this microbe, whether boiled or filtered."

This was mentioned even by Mark Twain in his More Tramps Abroad.

Recently microbiology researchers from Chandigarh's Institute of Microbial Technology (IMTECH), studied the healing properties of Ganges water at its upper reaches and found bacteriophage activity which destroys the disease causing bacteria. The bacteriophage is a type of virus that eats up bacteria.link.

Recently MIT came up with a study on fasting by humans and its beneficial impact on human health.link "Fasting boosts stem cell regenerative capacity"- the MIT article says,

"As people age, their intestinal stem cells begin to lose their ability to regenerate. These stem cells are the source for all new intestinal cells, so this decline can make it more difficult to recover from gastrointestinal infections or other conditions that affect the intestine.

This age-related loss of stem cell function can be reversed by a 24-hour fast, according to a new study from MIT biologists. The researchers found that fasting dramatically improves stem cells’ ability to regenerate, in both aged and young mice."

Indians practice this 24-hour fasting once in 15 days on the Ekadasi day from time immemorial.

The human body is an intelligent machine with recuperative and regenerative capacity and given the right metabolic switch , it can mend itself when disease strikes.

All the Siddhars of India emphasized that "உணவே மருந்து"(Food is medicine) when taken in the right quantity at the right time intervals. Thiruvalluvar has also emphasized this in his kural chapter "மருந்து". 

India is a land possessing all the keys to the world's problems, if only you explored.