How to write this formula? Thanks in advance.

Research
1

I am now reading , and how to write the formula to “identify the Probability of Financial Distress (PFD)”, here are the descriptions:
Calculate PFA variables:

• NIMTAAVG = weighted average (quarter’s net income/MTA)
• MTA = market value of total assets = book value of liabilities + market cap
• TLMTA = total liabilities / MTA
• CASHMTA = cash & equivalents / MTA
• EXRETAVG = weighted average(log(1 + stock’s return) − log(1 + S&P 500 TR return)
• SIGMA = annualized stock’s standard deviation over the previous 3 months (daily)
• RSIZE = log (stock market cap / S&P 500 TR total market value)
• MB = MTA / adjusted book value
• Adjusted book value = book value +.1 × (market cap-book value)
• PRICE = log (recent stock price), capped at $15, so a stock with a stock price of $20, would be given a value of log(15) instead of log(20).

Calculate logit for the probability of financial distress (LPFD) values:

• LPFD = −20.26 × NIMTAAVG + 1.42 × TLMTA − 7.13 × EXRETAVG + 1.41 × SIGMA − .045 × RSIZE − 2.13 × CASHMTA + .075 × MB − .058 × PRICE − 9.16

Calculate the probability of financial distress (PFD) value:

• PFD = 1/(1 + e^(-LPFD))

Anyone can give me some suggestions? Thanks!

2

Hi Dezhong, did you ever find a solution to this query, because I was looking for exactly the same answer, thanks, Bert

3

One thing you can consider is to skip the long complicated formula, and just put each factor in your list as its own stock formula node in your ranking system.

4

Grüß Gott Bertimmo,

What do you weigh your average with ? What’s the timeframe for stocks returns ? What’s the difference between total liabilities and book value of liabilities ?

5

Hi,

You may be interested in this thread, where I posted about PROBM, STA, and SNOA (also mentioned in Quantitative Value): http://www.portfolio123.com/mvnforum/viewthread_thread,6086. Please make sure to read the whole thread, there are some mistakes in my first posting(s). I haven’t done any work on PFD though.

Peter