Policy Research

A Comparison of Financial Indicators: The Case of Detroit

Samuel B. Stone, Akheil Singla, James Comeaux, Charlotte Kirshner

Summary

This article looks to find particular events and trends that would indicate that bankruptcy was imminent in Detroit and looked to find if particular types of indicators performed better than others. Disaggregated indicators and a 10-point scale approach yielded mixed signals but the authors did find that indicators in the asset and liability, operating solvency, and business type activity categories were the most useful financial indicators in explaining how Detroit tried to meet fiscal challenges, where evaluating broad socioeconomic trends of the population decline and a deteriorating economy explain the root causes of Detroit’s fiscal challenges.

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Policy Implications

This article can be useful in understanding the root causes and key indicators of financial distress and bankruptcy in the city of Detroit. This research was not indented to provide generalizable results, but rather to use the extreme case of Detroit against which to compare the wide array of financial indicators that now exist in the literature. Indicators fell into three groups: those that showed no sign of impending financial crisis, those that showed steadily worsening financial condition, and those that demonstrated a substantial change immediately prior to bankruptcy. This study helps to refine the set of financial indicators for use in financial condition analysis.