KMV model
The KMV model is a way to measure the risk that a company might not be able to pay back its debts. It's like pretending the company is a big piggy bank filled with money, and trying to guess if there will be enough money in the piggy bank to pay back the people who lent money to the company.
To guess whether the piggy bank is big enough, we need to look at a few things. First, we need to know how much money the company owes to other people. This is like counting how much money you owe to your mom and dad for buying you toys.
Second, we need to know how likely it is that the company will make enough money to pay back everyone it owes money to. This is like guessing if you will have enough allowance money to pay back your mom and dad for the toys they bought you.
The KMV model uses a lot of big, fancy math to make these guesses. It takes into account things like how much the company is worth, how risky it is to loan money to the company, and how much money the company might make in the future.
Overall, the KMV model helps us guess how likely it is that a company will be able to pay back the people it owes money to. If the piggy bank isn't big enough, then the company might not be able to pay back its debts, which could mean bad news for the people who lent the company money.
To guess whether the piggy bank is big enough, we need to look at a few things. First, we need to know how much money the company owes to other people. This is like counting how much money you owe to your mom and dad for buying you toys.
Second, we need to know how likely it is that the company will make enough money to pay back everyone it owes money to. This is like guessing if you will have enough allowance money to pay back your mom and dad for the toys they bought you.
The KMV model uses a lot of big, fancy math to make these guesses. It takes into account things like how much the company is worth, how risky it is to loan money to the company, and how much money the company might make in the future.
Overall, the KMV model helps us guess how likely it is that a company will be able to pay back the people it owes money to. If the piggy bank isn't big enough, then the company might not be able to pay back its debts, which could mean bad news for the people who lent the company money.