One way to test if a company runs the risk of filing for bankruptcy is through the Altman Z-Score, a formula developed by New York University professor Edward Altman in 1968. The Altman Z-Score measures several aspects of a company's financial health -- including working capital, total assets, total liabilities, market capitalization, sales, retained earnings and earnings before interest & taxes (EBIT) -- to forecast the probability of it going bankrupt within two years. Since its inception, the formula has been 72% accurate in predicting corporate bankruptcies two years prior to the filing, according to Investopedia.
On a general basis, companies with a Z-Score higher than 3 are considered safe with little danger of bankruptcy, while those with a score of 1.81 or lower are considered distressed and more likely to go bankrupt. Anything in between is a gray area. While the formula, of course, isn't the only indicator of financial health -- and is by no means a guaranteed barometer of a company's bankruptcy risk -- it is a metric worth considering for those hotels that fall below the safety zone. Those with a declining Z-Score year over year may also raise a red flag. Taking this into account, we offer the hotel chains with a Z-Score below 3 for the trailing 12 months, according to data from I-Metrix, from the least risky to the most risky, with a little detail on what each company has been up to lately. We limited our analysis to companies with a stock price of at least $1.
In the first quarter, despite what CEO Frits van Paasschen called "turmoil in North Africa and the Middle East and the devastating earthquake in Japan," worldwide revPAR -- or revenue per available room, a key metric in the hotel industry that multiplies a property's room rate by its occupancy rate -- jumped 10.4%. The metric was up 11.1% in North America. RevPar had suffered in recent years as cash-strapped travelers were unwilling to pay for high-priced hotel rooms, even at luxury level establishments. Starwood also offered an improved full-year profit guidance, or $1.60 to $1.70 per share, in line with analysts' expectations. "The outlook for the rest of the year looks promising as we view the events of the past few months as not having derailed the overall global economic recovery," van Paasschen said at the time.
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