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What is the Ohlson o-score?

Ohlson o-score

It's a financial formula for predicting bankruptcy that was proposed by Dr James Ohlson of the New York University Stern Accounting Department in 1980. He suggested it as an alternative to the Altman Z-score for forecasting financial distress.

Where have you heard about the Ohlson o-score?

Some investors use the Ohlson o-score to help them find companies to short sell or avoid. You'll probably also be familiar with the term if you're an accountant or a mathematician.

What you need to know about the Ohlson o-score.

The Ohlson o-score is the result of a nine-factor combination of coefficent-weighted business ratios obtained from companies' financial disclosure statements.

The original model for the O-score was produced from the study of over 2000 companies, whereas its predecessor the Altman Z-Score only considered 66 companies. So the O-score is considered to be far more accurate a predictor of bankruptcy within a two-year period.

All the same, it's important to point out that no mathematical model is 100% accurate. While the O-score can forecast bankruptcy or solvency, factors inside and outside the formula can affect its accuracy.

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