USA Today.com, just covered something called The Altman Z-Score ” a financial indicator that predicts when companies are careening toward serious financial distress, which the article says is commonly used by investment professionals.
“The Z-Score is a single number that summarizes the financial strength of companies in five dimensions. ”
“The Z-Score examines companies by sizing up working capital, retained earnings, earnings before interest and taxes to total assets and sales to total assets as well as market value to book value of liabilities.
“All that might sound complicated. But the bottom line is that the Z-Score gives investors a single number — almost like a letter grade — that tells how strong or shaky the company’s future is.”
“In an interview with USA TODAY, Z-Score inventor Edward Altman said that now investors need to be most concerned about companies with Z-Scores of less than zero”.
I have no idea of how Verisign can have a negative number since it has billion plus in cash and a over 50% profit margin, but it does top the list in the worst possible way.
USA Today published the six companies with the worst score in the Standard & Poor’s 1500 and low and behold the company with the lowest or worse score is VeriSign (VRSN),
“Z-Scores of less than 0, which implies that serious financial distress could be coming in the future”
| Company | Symbol | Z-Score |
| VeriSign | VRSN | -9.01 |
| Forest Oil | FST | -3.08 |
| Ciena | CIEN | -1.66 |
| Time | TIME | -1.32 |
| Cincinnati Bell | CBB | -0.811 |
| Harmonic | HLIT | -0.442 |
Sources: S&P Capital IQ, USA TODAY
The Z-Score was originally designed to measure the financial health of manufacturing companies. Altman has also created a related measure called the Double Z Prime, which is more appropriate for non-manufacturing firms.
This measure, too, reflects the difficult financial situation these companies are in. The Double Z Prime scores for the companies as of the second quarter of 2014 are listed below:
| Company | Symbol | Double Z Prime Score |
| VeriSign | VRSN | -24.3 |
| Forest Oil | FST | -6.28 |
| Ciena | CIEN | -5.37 |
| Time | TIME | 0.47* |
| Cincinnati Bell | CBB | -2.49 |
| Harmonic | HLIT | -1.82 |
The USA Today Article goes on to say:
“VeriSign, through an e-mailed statement, says that its Z-Score, is distorted. “Verisign does not believe the Altman Z-Score, as calculated, reflects the Company’s financial health. The Altman Z-Score is intended to be used to predict potential future financial distress, but in the case of Verisign the result is significantly skewed by a transaction (the acquisition of Network Solutions in 2000) that occurred more than a decade ago which resulted in the large accumulated deficit balance on our balance sheet. The Company believes the use of its accumulated deficit balance in isolation, as it is in the Altman Z-Score calculation, does not result in an accurate assessment,” according to the company’s statement.
Its a very interesting article and you can check the whole article out here
MHB, the answer to your question is here: “the result is significantly skewed by a transaction (the acquisition of Network Solutions in 2000) that occurred more than a decade ago which resulted in the large accumulated deficit balance on our balance sheet.”
That was a crazy price to pay for NSI. Thats the reason I did not invest in Verisign back in the day. Back end political deals and controlling non-bid contracts for root zone management. Surprised they have not doubled down back into the space more aggressively. One guy pulling in a few data points and calling it zScore hardly explains the past and future health of Verisign.. Verisign should really look and analyze is future direction and see if its going to be that old school political/government contract company or start thinking like a disruptive growth stage company with great positioning.
The “Paradox of Choice” creates market uncertainty and customer freeze (deer in the lights syndrome). Too many choices, so many extensions, so what does the customer, who’s not a domainer,, choose to name her/his company, venture, cause?
So they know more than Warren Buffet who has recently increased his stake to over 10% of outstanding shares…