How To Identify Insolvent Publicly Traded Companies

Law360 (August 15, 2019, 3:39 PM EDT) -- As Law360 reported, Windstream Holdings Inc. filed for bankruptcy protection on Feb. 25, 2019, and Sanchez Energy Corp. filed for bankruptcy protection on Aug. 11, 2019. Interestingly, both companies were insolvent as of Dec. 31, 2018, based on a simple method using market prices of debt and equity and face value of debt to identify insolvent firms.

This method, which I developed from an elementary algebraic relation among the inputs to the balance-sheet solvency calculation for a publicly traded firm, requires only the generally uncontroversial assumption that the market value of assets equals the sum of the market value of the...

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