Law + Mining
Entering the Stock Market
MINING LAWYER - FINANCING TERMS
Amounts owed by the business for purchases made on
credit. These amounts are paid by the business after a time lag that is
measured by Days Payable Outstanding.
Amounts due to the business from customers for merchandise or services
purchased on credit. The business does not receive payment for these
amounts immediately, and the delay before payment is measured by Days
Expenses that the business
has incurred for which it has not received, or will not receive, an
invoice, and that have not yet been paid.
The total amount of depreciation expense recorded to
date for the company's fixed assets. On the balance sheet, this value is
subtracted from the gross value of Property, Plant and Equipment to
derive a net figure.
The amount actually paid
to purchase an asset. This includes all costs associated with the
purchase, such as installation, freight, and sales tax.
Financial statements describing the actual operations of the business.
Actuals often pertain to the "historical" period before the start of the
forecast period, but as time goes on, additional imported Actuals will
generally overlap with the forecast.
Additional Paid-in Capital
The amount paid by investors for stock over and above its par value. See
also contributed capital.
After Tax Income
Another term for
The recognition of part of an
intangible asset's cost as an expense during each year of its useful
life. Items that are amortized include goodwill, start-up expenses and
Anything that has future economic
value. In addition to items such as cash and equipment, assets can
include intangibles such as goodwill.
Average Annual Return
The expected annual return on an investment, including interest and
dividends, expressed as a percentage.
A method of
inventory valuation whereby the total cost of all units bought or
produced is divided by the number of units.
Bad Debt Expense
Losses for uncollectible accounts receivable.
financial statement that lists the assets, liabilities, and equity of a
company at a certain point in time.
The total amount
of indirect compensation that the business will provide to employees for
each forecast year. Benefits are either statutory, such as payroll taxes
and worker's compensation; or discretionary, such as health insurance,
life insurance, and pension plans.
The value of an
asset for accounting purposes. For assets where depreciation is taken or
reserves booked, this is often expressed as a net book value. The book
value of a company is the excess of assets over liabilities, which is
equivalent to total owner's equity.
analysis tool that models how revenue, expenses, and profit vary with
changes in sales volume. Breakeven analysis estimates the sales volume
needed to cover fixed and variable expenses.
The sales level at which revenues equal expenses (fixed and variable).
The process of determining and recording the expected
financial results of a future period, generally the next fiscal year. In
some organizations budgeting is limited to financial items that are
shown on the income statement, while in others the budgeting process
produces the three major statements (Income Statement, Balance Sheet,
and Cash Flow Statement). After the target time period begins, the
budgeting process frequently includes tracking actual financial figures
against the forecast as well. There is considerable overlap between the
activities of budgeting and forecasting. Budgeting usually involves a
more detailed account structure and a finer time scale than forecasting,
which typically covers between three and seven years of higher-level
A long-term lease of property,
plant, or equipment in which the lessee acquires essentially all the
risks and benefits associated with the ownership of the leased item.
Because it most closely resembles the financing of an asset purchase, a
capital lease is treated as a long-term debt rather than as a rental.
Cash & Equivalents
Cash plus investments of very high
liquidity and safety, such as money market funds and treasury bills. See
also minimum cash balance.
Cash Flow Statement A financial report
that expresses a company's performance in terms of cash generated and
Chart of Accounts
In an accounting system, the list of
accounts to which transactions are posted.
term used to refer to a financial statement in which all items are
expressed as percentages of another item in the statement. For example,
a common-sized balance sheet might show all values as a percentage of
Common Stock Equivalents
stock plus convertible bonds, stock options, and warrants.
Accounts, such as Accumulated Depreciation, that
offset a related account, usually an asset. The contra account is
subtracted from the related account to arrive at the net book value.
The total amount paid to the business for
its common and preferred stock.
Contribution Margin The difference
between revenue and the associated variable costs. This is an important
concept in breakeven analysis.
Another term for
expenditure. See also expenses.
Cost of Goods Sold
term for cost of sales.
Cost of Sales/Services (COS)
costs associated with the goods or services that were sold during a
specified accounting period, including materials, labor, and overhead.
A set of conditions agreed to in a formal debt
agreement and designed to protect the lender's interests. Covenants may
include restrictions on debt/equity ratio, working capital, or dividend
payments. See also management goals.
that are convertible to cash within one year in the normal course of
business. This usually includes cash, accounts receivable, inventory,
and prepaid expenses. See also non-current assets.
Obligations that will come due within a year from the
current date. These usually include accounts payable, accrued expenses,
and the portion of long-term obligations due within one year. See also
Current assets divided
by current liabilities. This ratio is a measure of a company's ability
to meet its financial obligations in a timely manner.
Payable Outstanding (DPO)
The number of days a business takes to pay
its accounts payable, on average.
Days Sales Outstanding (DSO)
The number of days a business takes to collect on its accounts
receivable, on average.
A form of liability that
represents money borrowed from banks or other institutions.
to Equity Ratio
The ratio of total debt to owners' equity, used as a
measure of leverage and ability to repay obligations.
Tangible Equity Ratio
The ratio of total debt to tangible equity,
used as a measure of leverage and solvency. Typical values for this
ratio vary from one industry to another. Lower values for the ratio
represent a better financial condition.
liability that arises when a customer pays for goods or services before
delivery is complete; for example, a one-year service contract billed in
advance. Under accrual accounting, revenue must be booked when the
obligation is fulfilled, not when cash is paid or received.
An entity defined for reporting purposes.
The recognition of part of an asset's cost as an expense
during each year of its useful life. There are several acceptable
methods for calculating this expense, including straight-line
depreciation and various accelerated methods. See also double-declining
balance, straight-line method, and sum of the years' digits.
Expenses, such as labor, overhead, and materials, that
vary in direct proportion to units produced or services rendered.
Wages paid for activities directly related to
production of units sold or services delivered, considered part of cost
of sales. This does not include management and administrative salaries,
which are treated as operating expenses or overhead. Also referred to
simply as labor.
Double Declining Balance (DDB)
A method of
recording accelerated depreciation. Also called the 200 percent
declining balance method, this system applies twice the annual
straight-line rate to the undepreciated balance of the asset's
depreciable cost each year of the asset's useful life. For example, if
the asset has a depreciable value of $1,000,000 and a useful life of
five years, the double-declining balance method would record $400,000 of
depreciation the first year, $240,000 the second year, $131,429 the
third year, $114,286 the fourth year, and $114,285 the fifth year. See
also straight-line method and sum of the years' digits.
Before Interest and Taxes (EBIT)
Net income before income tax
expense and interest expense. This is a popular measure for comparing
the earning power of companies, because it eliminates the impact of
capital structure and effective tax rates, two non-operating factors.
Earnings Per Share (EPS)
Net income divided by the number of
outstanding shares of common stock and equivalents.
Earnings before interest, taxes, depreciation, and amortization.
Technical measures that analysts use to
forecast events in economic systems; for example, Gross Domestic Product
and Consumer Price Index.
A general term for
various technical measures of profit in which adjustments are made to
the traditional accounting definition of Net Income. Such adjustments
are typically made in order to better estimate the future value of a
Also known as net worth or owners' equity.
Equity is the net value of a company's total assets, less its total
All purchases made by a business,
whether in cash or on credit; not equivalent to expenses. Also known as
Resources used to support the ongoing
operations of a business for a specified time period; not equivalent to
expenditures or costs.
Inventory ready for
First In, First Out (FIFO)
A method of inventory
valuation whereby the goods first purchased or manufactured are
considered the first ones sold. During periods of inflation, the FIFO
method shows inflated profits compared to the last in, first out (LIFO)
The 12-month period, not necessarily
coinciding with the calendar year, chosen to constitute a single year
for external financial reporting and taxes.
Fiscal Year End
The last month of a company's fiscal year.
Another term for Property, Plant and Equipment. See also depreciation.
Fixed Assets to Tangible Equity Ratio
The ratio of net
Property, Plant and Equipment book value to tangible equity, used as a
type of efficiency ratio. Typical values for this ratio vary from one
industry to another. Higher values for the ratio represent a more
capital-intensive company, which may be good or bad depending on the
industry and how well the assets are being used to generate revenues.
Expenses that are assumed not to vary with sales
volume within the expected range of sales volumes, such as rent or
administrative costs. This is an important concept in breakeven analysis
and in distinguishing between gross margin and contribution margin. See
also variable costs.
The period of time for
which a business is modeled. Depending on the forecast start month, the
first year of the forecast period may not be a complete forecast year.
See also Forecast Year.
Forecast Start Date
The month and
year on which the forecast period begins. See also Forecast Year.
Most people choose the forecast year to coincide
with either the January-December calendar year or the fiscal year of the
business, but this is not a requirement. Depending on the forecast start
month, the first year of the forecast period may cover less than 12
months. In this case, assumption values that are entered for the first
forecast year should represent the correct fraction of the 12-month
Financial forecasting is the process of
estimating future financial performance. The projected financial
performance of a business is measured by using pro-forma financial
statements as well as other indicators such as trend analysis, ratio
analysis, and return on equity. Forecasting often takes a higher-level
viewpoint than the related activity of budgeting. In broader terms,
forecasting can also refer to estimates of broad economic activity in a
country, industry, or financial area. For instance, analysts and
economists release forecasts of where interest rates or stock market
prices might go in the future.
An acronym for Generally
Accepted Accounting Principles. Accountants follow GAAP standards,
conventions, and rules in recording and summarizing financial
transactions, and in preparing financial statements. GAAP standards are
issued by the American Institute of Certified Public Accountants.
The accounting term for amounts paid for assets over and
above their fair market value. Goodwill arises, for example, when a
company purchases another business and pays a price higher than the
value of the acquired assets alone. Goodwill theoretically represents
the value of the business's name, reputation, and customer relations,
which increase the true value of the business beyond the value of its
Net Sales less cost of sales
(including both fixed and variable costs), often expressed as a
percentage of sales. Also referred to as gross profit.
The total of amounts received (sales for cash) and amounts
expected (sales on credit) in return for products sold or services
rendered during the given time period. Gross sales reflects sales at
invoice values, before sales discounts and credit card fees.
Another term for net income.
financial report that shows a company's performance over a specified
period of time by subtracting expenses from revenue to obtain net
income. Also known as a profit and loss statement (P&L) or an earnings
Income Tax Expense Levies on the income of a business imposed
by federal and state governments. This expense appears on the income
statement simply as Taxes.
A long-term asset
that represents a financial, legal, or accounting concept rather than a
physical item. Examples of intangible assets include: Goodwill, the
value of a patent, copyright, or trademark, the value of a franchise or
operating rights. Under accounting rules, an intangible asset must have
a useful life greater than one year, and a portion of its value must be
amortized over time as an expense. Near the end of the useful life of an
intangible asset, when its remaining life is less than one year, the
asset must still be classified as a long-term asset. See also tangible
The interest rate, such as prime or
LIBOR, that is used as a reference point for quoting borrowing rates.
For example, using the prime rate as the interest basis, a loan might be
offered at prime plus one percent. See also Prime Rate and London
Interbank Offered Rate.
Money paid by a
business in exchange for the use of capital for a specified time period.
On the income statement, "Interest Expense (Income)" is a single account
that is the net amount of interest income and interest expense.
Money received by a business in exchange for the use
of capital for a specified time period. On the income statement,
"Interest Expense (Income)" is a single account that is the net amount
of interest income and interest expense.
cost of borrowing money, expressed as a percentage per period of time,
usually one year.
Goods purchased or manufactured
by a business and held for production or sale. Inventory is often
subdivided into raw materials, work in progress, and finished goods. See
also Inventory Targets.
The numbers of
months of inventory that the user requires to be in stock at a given
point in time. For Raw Materials, this amount represents the number of
months of future production. For Finished Goods, the amount represents
the number of months of future sales.
ratio of annual cost of sales to inventory, commonly used as a rough
measure of inventory management efficiency. Also known as inventory
turnover ratio or simply turns.
The expenditure of
cash to create additional capital. Investment can be in income-producing
vehicles such as stocks and bonds, or more risk-oriented ventures such
as the purchase of another company.
Another term for
direct labor. See also salaries and benefits.
Last In, First Out
A method of inventory valuation whereby the goods most
recently purchased or manufactured are considered the first ones sold.
In periods of rising prices, the LIFO method shows a lower profit than
the first in, first out (FIFO) method.
contract granting use of real estate, equipment or other fixed assets in
exchange for payment. All leases entered in the Property, Plant and
Equipment Detail are considered capital leases; operating leases should
be entered as expenses in the Expenses Detail. See also mortgage.
The relationship between debt and equity. A company is
considered highly leveraged if its levels of debt are high compared to
Obligations used to fund the
operations of a business, including bank loans, accounts payable, and
See London Interbank Offered Rate.
See last in, first out.
Line of Credit
amount of short-term credit available to a business from banks.
A company's ability to generate cash in a timely manner in
order to meet its obligations, often measured by the quick ratio or the
London Interbank Offered Rate (LIBOR)
interest rate used among the most creditworthy international banks for
large loans in eurodollars. LIBOR is an important reference number,
because loans to businesses can be tied to it on a percentage basis. See
also prime rate and interest basis.
that has an economic life greater than one year. Liquid items such as
cash are considered to be current or short-term assets. Under accounting
rules, intangible assets must always be classified as long-term assets,
even if their remaining life is less than one year.
Liabilities that represent money borrowed from banks or
other lenders to fund the ongoing operations of a business and that will
not come due within one year.
A set of
conditions a business is striving to achieve. These may include
requirements for debt/equity ratio, working capital, or dividend
payments. See also covenants.
The price at which
an asset would pass from an informed and willing seller to an informed
and willing buyer, assuming that goodwill played no role in the
Securities that can
readily be converted into cash, including government securities,
bankers' acceptances, and commercial paper.
physical inputs to manufacturing, treated as part of cost of sales. Also
known as raw materials.
Miscellaneous Current Assets
account for current assets that do not fall into the following
categories: cash, marketable securities, accounts receivable, other
receivables, inventory, and prepaid expenses.
An account for current liabilities that do not
fall into any of the categories already defined. Examples of predefined
categories are accounts payable, accrued expenses, and short-term notes
An account for operating
expenses that do not fall into any of the predefined categories such as
salaries, utilities, advertising, and depreciation.
Miscellaneous Non-Current Assets
An account for assets not including
current assets, property, plant and equipment, intangibles, deposits,
and loans made.
Miscellaneous Non-Current Liabilities
account for non-current liabilities not including long-term debt
(mortgage debt, lease debt, long-term borrowing, and shareholder loans)
and deferred taxes.
A long-term debt instrument for
the purchase of property by which the borrower uses the property itself
Net Book Value
The acquisition cost of an
asset less any accumulated depreciation. See also book value and contra
Net Cash Provided By Operations
On a cash flow
statement, net income plus non-cash transactions and the net amount of
changes in operating assets and liabilities.
revenues minus total expenses, including taxes and depreciation, for a
specified time. Also known as profit, net profit, or net earnings.
Net Income Before Taxes
Total revenues minus total expenses
except the income tax expense, for a specified time. Also known as
Net Operating Loss (NOL)
The excess of
business expenses over income in a given tax year.
Loss (NOL) Carryforward
The amount of Net Operating Losses
accumulated over past tax years that is available for offsetting taxable
income in the current and future tax years.
Net Present Value
A measure of a project's future value in current dollars.
Future income and expenses are summed and then discounted using a
required rate of return to adjust for the time value of money. Net
present value is, theoretically, the best method for evaluating
Net Property, Plant and Equipment
plant and equipment minus accumulated depreciation. This number
represents that portion of PP&E acquisition cost that has not yet been
recognized as an expense. It is not the same as externally determined
measures such as market value.
Sales revenue less
sales discounts and credit card fees.
Assets that are not convertible to cash within one year in the normal
course of business. Property and Goodwill are examples of non-current
assets. See also current assets.
Obligations that will not come due within one year of the current date.
See also current liabilities.
not related to the ongoing operations of a company; for example,
interest expense, one-time events, and taxes.
Income not related to the ongoing operations of a company; for
example, interest income and sale of fixed assets.
All expenses related to the ongoing operations of a company,
including research and development, sales and marketing, and
administrative expenses. Any costs directly attributable to producing
goods or services are not included. See also cost of sales.
Sales revenue minus cost of sales and operating
expenses. Similar to earnings before interest and taxes, operating
income is examined when the earnings of the core business are analyzed.
Also referred to as operating profit, operating earnings, and income
A type of lease, normally
involving equipment, classified as a rental not as a purchase over time.
An operating lease must be shown as an expense in the Expenses Detail,
unlike a capital lease, which is treated as a long-term debt.
Another term for operating income.
Assets exclusive of current assets and property, plant and
equipment. Other assets can include intangibles, deposits, loans made,
and miscellaneous non-current assets.
due to activities outside the normal operations of the business, for
example, loss from foreign exchange and loss from investments.
Income due to activities outside the normal operations
of the business, for example, dividends from investments and gain from
Liabilities other than
debt, line of credit, and accounts payable, for example, deferred taxes,
accrued expenses, and customer deposits.
incurred in operating a business, such as rent, executive salaries, and
insurance, that are not directly related to the manufacture of a product
or delivery of a service. A portion of overhead can be attributed to
cost of sales, usually on a percentage basis; the remainder is
considered an operating expense.
The stated value of a share of stock.
Par is usually a minimal value (such as $.01) and bears no relation to
the market value of the shares. See also contributed capital.
Another term for accounts payable.
total wages, not including benefits, paid by a business during each
A term for expenses recorded
in the period in which they occur regardless of whether or not they
pertain to a prior or later period. R&D and advertising expenditures are
examples of costs that benefit future periods but must be treated as
period expenses according to Generally Accepted Accounting Principles
The level of detail in terms of time at
which data is forecast or reported, specified as months, quarters, or
Discrete intervals of time. The word period
generally refers either to the interval of the entire forecast (as in
forecast period) or the granularity of data in financial statements (as
Another term for Forecast
The scale at which forecast numbers are
displayed. Choices include dollars, hundreds, thousands, and millions.
Services, goods, and intangibles paid for
prior to the period in which they provide benefit. Prepaid expenses are
accounted for as assets until their benefit is realized.
A schedule that associates prices with individual products. This
list allows you to forecast sales in units and still create projections
in dollars. See also Discount List.
Price/Earnings Ratio (P-E)
The market value of a company's stock divided by net income.
The interest rate that banks charge to their most
creditworthy customers. The prime rate is an important reference number,
because loans to companies are often tied to it on a percentage basis.
See also London Interbank Offered Rate and interest basis.
Pro-Forma Financial Statements
A set of financial statements and
other schedules that show projected results for a future period. They
are called pro-forma financial statements because they have the form of
financial statements, but are not prepared from actual operating
results. The three major financial statements are the Income Statement,
Balance Sheet, and Cash Flow Statement. For external reporting, these
statements must conform to Generally Accepted Accounting Principles
Another term for net income.
Loss Statement (P&L)
Another term for the income statement.
Prompt Payment Discounts
Discounts that a business gives to credit
customers who pay within a specified period of time; also called sales
discounts. On an income statement, this amount is subtracted from Gross
Sales to yield Net Sales.
Property, Plant and Equipment (PP&E)
Assets used in the operations of a business that have a useful life
greater than one year, including land, buildings, machinery, equipment,
and furniture. Also known as fixed assets. See also depreciation.
Purchases of PP&E
The acquisition cost of new property, plant and
equipment assets in a given year, minus the proceeds from the sale of
existing PP&E. See also depreciation.
assets, excluding inventory and prepaid expenses, divided by current
liabilities. Also known as the acid test ratio. Like the current ratio,
the quick ratio is used as a measure of a company's liquidity. It helps
estimate a company's ability to meet its current obligations using
assets that can easily be converted into cash. Although typical ratios
vary from one industry and company size to another, financial
authorities recommend that the Quick Ratio should be 1.0 or greater.
A comparison of financial statement elements in the form of
a quotient. Ratios such as the price/earnings ratio, return on assets,
and quick ratio are often used for analyzing financial statements.
Another term for materials.
Another term for accounts receivable.
profits kept within a business in the Owners' Equity account after stock
dividends are paid.
Debt paid off within
a given period of the forecast.
Retirement of Long-Term Debt
The repayment of a non-current liability.
Return on Assets (ROA)
Net income for a time period divided by total assets. This ratio is
often used to measure profitability or the efficiency with which assets
are being employed. Higher values for this ratio indicate better
financial performance. The specific value obtained for a business should
be evaluated in relation to the returns that can be obtained from
alternative investments of capital.
Return on Tangible Equity
Net income for a time period divided by tangible equity. This ratio is
sometimes used to measure profitability or the efficiency with which the
owners' financial investments are being employed. The value of
intangible assets such as goodwill is excluded from this ratio in order
to better reflect actual operating profitability. Higher values for this
ratio indicate better financial performance. The specific value obtained
for a business should be evaluated in relation to the returns that can
be obtained from alternative investments of capital. An alternate form
of this ratio can also be computed using pre-tax income instead of net
Return on Equity (ROE)
Net income divided by equity.
This ratio is often used as a measure of the return on funds invested in
The total income received in exchange for
goods or services during a specific accounting period. Revenue can be
recorded using either the cash basis (as received), or the accrual basis
(as earned). Also referred to as sales or sales revenue.
Compensation provided by a business to employees, excluding benefits. On
an income statement, Salaries refers only to that portion of
compensation (such as administrative and management costs) that does not
vary in direct proportion to sales. See also labor.
Another term for revenue.
The scrap value of an
asset. Acquisition cost minus salvage value yields the total amount that
an asset is depreciated over its useful life.
Another term for equity.
that represent money borrowed from banks or other institutions to fund
the ongoing operations of a business that will come due within one year.
The four-digit code prescribed by the Standard
Industrial Classification System to categorize businesses according to
the types of activities they perform.
ability to satisfy its obligations to creditors when they are due. A
company is "technically insolvent" if it has enough assets to pay
creditors, but cannot liquidate them quickly enough to meet payment
A target or average cost that can
be used either to value inventory or as a basis of comparison with
actual costs. Standard costs can often be used to calculate cost of
sales, in which case standard cost refers to the average amount of
materials, direct labor and overhead required to produce a single
product or service unit.
Standard Costs Plus Variances
method of calculating cost of sales that compares the amounts of
materials, direct labor and overhead projected in the Cost of Sales
assumption (the standard costs) to expenses allocated to the Production
department in the Expenses, Property, Plant and Equipment, Payroll and
Benefits, and Other Assets assumptions (the variances).
Statement of Cash Flows
Another term for cash flow statement.
Another term for equity.
The simplest form of depreciation, in which an
equal expense is recorded in each year of an asset's useful life. For
example, if the asset has a purchase price of $1,200,000, a useful life
of four years and a salvage value of $200,000, straight-line
depreciation would record $250,000 of depreciation each year. See also
sum of the years' digits and double-declining balance.
the Years' Digits (SYD)
A method of recording accelerated
depreciation. Also called the sum-of-digits method, it allows the
depreciation of an asset based on an inverted scale of the total digits
of the asset's useful life. For example, if the useful life is four
years, the years' digits (1, 2, 3, and 4) are summed to produce ten, and
4/10ths of the asset's depreciable cost is recognized as an expense the
first year, 3/10ths the second year, and so on. See also straight-line
method and double-declining balance.
that represents a physical object such as land, furniture, and
buildings. Under accounting rules, a tangible asset must have a useful
life greater than one year, and must be used in business operations
rather than being held for resale. The following types of assets are not
considered to be tangible assets: items held for resale, which are
considered to be inventory, cash and other liquid assets which are
considered as current assets, and abstract assets such as goodwill,
which are intangible assets. See also tangible equity.
Equity less intangible assets. See the ratios of debt to
tangible equity, fixed assets to tangible equity, and return on tangible
Levies on the annual income of a business
imposed by federal and state governments. On the income statement, this
figure does not include property taxes, which are considered an
Stock that has been
reacquired by the company that issued it and is available for retirement
or resale. Also called reacquired stock and treasury shares.
Another term for inventory turns.
A method used to calculate accounts receivable. This allows
you to break down receivables into categories that indicate what
percentage of the total is paid within specified lengths of time from
the sales date. See also days sales outstanding.
A method used to calculate accounts payable. It allows the
user to break down payables into categories that indicate what
percentage of the total is paid within specified lengths of time from
the purchase date. See also days payable outstanding.
An estimate of the period of time over which an asset will be of
use to a company. Along with acquisition cost and salvage value, this
measure is used to calculate the amount that the asset is depreciated
Expenditures that change in
proportion to increases or decreases in sales or production volumes. See
also fixed costs.
The difference between actual and
targeted numbers for revenues, expenditures, or productivity. Variances
are usually described as either favorable or unfavorable. See also
The net amount of current
assets and current liabilities. This is equivalent to a company's liquid
A bankruptcy predictor based on the formula
derived by Dr. Edward Altman. According to the Altman model, a Z-Score
of 3.0 or higher indicates that the company is most likely safe based on
the financial data; a score below 1.8 means that the firm is probably
headed for bankruptcy. In studies, the Z-Score has been shown to have
90% accuracy of prediction of bankruptcy in the first year of the
forecast, and 80% accuracy in the second year.