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Nortel Makes Motley Fool’s Deathbed List
By Mark Evans | August 6, 2008
Motley Fool compiles a list of “deathbed stocks” based on assessing their liquidity and ability to pay their bills using the current ratio and quick ratio.
Here’s Motley Fool’s criteria:
“A current ratio above 1.5 and a quick ratio north of 1.0 means it’s able to meet its short-term operating needs. We’ve also added the Altman Z-Score to predict the likelihood of filing for bankruptcy protection, but please note: It’s not designed to be used in every situation, and there are some limitations to it.”
“A company scoring 3.00 and above is considered safe, scores between 2.70 and 2.99 are in the “yellow flag” zone, scores between 1.80 and 2.70 mean the chance of filing for bankruptcy protection within two years is good, and scores below 1.80 mean “Watch out below!”
Nortel initially appeared on “deathbed” list last December when it was trading around $15. Now, Motley Fools says:
“Fast-forward seven months and the networking solutions provider looks even more pallid than it did back then. Shares have fallen an additional 60%, losses spiked in the most recent quarter, and orders are down because of less CDMA (code division multiple access) spending by customers, one of which is rumored to be Sprint Nextel (NYSE: S). (Competitor Alcatel-Lucent (NYSE: ALU) decided to clean house, ridding itself of both the chairman and the CEO because it’s also suffering.)”
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