Calculator · Credit risk
Distress probability calculator
Estimate the probability that the business fails before the end of the forecast from a bond rating, a traded bond price or a Merton-style option model, and weigh the going-concern value against the distress-sale value.
How the distress probability is estimated
A DCF assumes the business survives. When there is a real chance it will not, Damodaran recommends weighting the going-concern value by the probability of survival and the distress-sale value by the probability of failure. The calculator estimates that probability from cumulative default rates for a rating (Altman by default; S&P global or emerging-market tables, or PEFINDO for the Indonesian national scale, as options), from a bond price, or from the volatility of firm value.
The three estimators measure default on debt, which is not the same as failure of the business, so the result is a reasonableness range rather than a precise figure.
Related: Cost of debt calculator · Option pricing calculator · Equity bridge calculator · Model notes
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