One often wonders how, in the case of a celebrated bankruptcy filing such as that of Osborne Computer Corp., the creditors got so far out on a limb. One answer is that they didn't see the trouble brewing, blinded either by sheer greed or simple faith. An expert on bankruptcy and credit, but not psychology, Altman can't do much about the former. He does, however, provide a number of solid if theoretical bases for predicting when private and public companies are about to go belly up. The solvency models (having to do with such financial variables as the ratio of retained earnings to total assets) are often statistically complex and only suggestive at best, but his own empirical evidence suggests that they work.

Published on: Feb 1, 1984