Fulmer H Factor / Score

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The Fulmer H Factor (also frequently called Fulmer H Score) is a bankruptcy classification model, based on the 1984 paper "A Bankruptcy Classification Model for Small Firms".

According to the model, a firm should be classified as bankrupt if the score is below zero and should be classified as not bankrupt if the score is above zero.

Note that this is a probablistic model, so classifications will not be accurate 100% of the time. That said, the model can certainly be used as a guide to understand which stocks may be safer, and which may be less safe.

Scores lower than zero are classified as "failed".


H Factor = 5.528 * X1 + 0.212 * X2 + 0.73 * X3 + 1.27 * X4 - 0.12 * X5 + 2.335 * X6 + 0.575 * X7 + 1.083 * X8 + 0.894 * X9 - 6.075

X1 = Avg Retained Earnings / Average Total Assets
X2 = Revenues / Average Total Assets
X3 = EBIT / Total Equity*
X4 = Cash Flows from Operations / Average Total Debt**
X5 = Average Total Debt / Total Equity*
X6 = Total Current Liabilities / Average Total Assets
X7 = log(Average Tangible Assets)
X8 = Average Working Capital / Average Total Debt**
X9 = log(EBIT) / Interest Expense***

* Total Equity = (Market Cap + Preferred Stock Equity + Noncontrolling Interests)
** If Average Total Debt is Zero, this quantity is assumed to be zero.
*** If Interest Expense is Zero, this quantity is assumed to be zero.

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