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Probability of Distress (PoD)

The Probability of Distress (PoD®) is the [probability] that a company will experience Distress Event within 1 year, expressed as a percentage. Financial distress is defined as failure, reconstruction*, or some other indicative event (for example, filing for Chapter 11 protection).

The derivation of a company’s PoD® incorporates:

- the company’s H-Score (a measure of the extent to which it resembles companies which subsequently failed),

- the overall rate of distress across the full population of companies,

- the historical rate of distress at each point on the H-Score scale,

- economic indicators such as the growth in GDP.

• Reconstruction is identified for any company that, from a level of weakness (low H-Score), has reduced either its current liabilities or its total liabilities by more than 30% with one or more of the following actions:

    -   Capital injection: an increase in net worth of more than 50%
    -   Rescheduling of more than half of short-term debt
    -   Disposal of more than 30% of fixed assets.

The PoD® has been developed by the financial health monitoring organisation Company Watch, based in London, UK.

Category:Finance Category:Financial ratios Category:Bankruptcy