TransAlta Corporation — financial distress indicators
Financial-health summary
TransAlta Corporation's reported numbers place it in the 'Watch' financial-health band (distress score 38/100). The main indicators are operating profit does not cover interest, ohlson o-score signals likely failure and steep revenue decline. Independently, the Ohlson accounting model puts its 1-year failure probability at 73% and the market-implied (Merton) default probability is 0.3%. In its favour: operating cash flow is positive over the latest 12 months.
Stress by dimension
Share price — last 12 months
Indicators behind the score
Each red flag shows the evidence from the company’s own filings and the financial or legal principle behind it. Points add to the 0–100 score.
Interest coverage (EBIT / interest) is 0.73×.
When EBIT < interest, debt service is funded from cash reserves or new borrowing — the classic precursor to payment default and covenant breach.
O-score 1.00 → model probability 73%.
Ohlson (1980) logit model of 1-year corporate failure; O > 0 (p > 50%) is the original failure cut-off.
Revenue changed -15% year over year.
Falling sales reduce cash available for debt service.
Operating margin fell from 30% to 3% in two years.
Sharp margin compression signals loss of pricing power or cost control.
Revenue vs net income
Cash generation
Debt vs cash vs equity
✅ Mitigating factors
- Operating cash flow is positive over the latest 12 months.
📰 Recent news scan
- TransAlta Corporation (TAC) Stock Forecasts - Yahoo FinanceGoogle News · 2026-10-08
- TransAlta Corporation (TAC) Stock Price, News, Quote & History - Yahoo! Finance CanadaGoogle News · 2026-10-06
- TransAlta Corp (TAC) Stock Up 5.2% but GF Value Says Overvalued -- GF Score: 50/100 - GuruFocusGoogle News · 2026-10-06
- Technical Reactions to TAC Trends in Macro Strategies - Stock Traders DailyGoogle News · 2026-10-06
- Results arrive before markets open November 3 for TransAlta (TAC), with a 10 a.m. Eastern call. - Stock TitanGoogle News · 2026-10-05
- TAC: Transalta Corp. Latest Stock Price, Analysis, News and Trading Ideas - StocktwitsGoogle News · 2026-09-23
⚖️ U.S. legal pathway — Title 11, U.S. Code
Which chapter would apply?
- Chapter 11 — reorganisation. Management usually stays in control as debtor-in-possession; the automatic stay (§362) halts collection; a plan must meet the best-interests test (§1129(a)(7)) and the absolute priority rule (§1129(b)) — creditors are paid before shareholders, who are frequently wiped out.
- Chapter 7 — liquidation. A trustee sells assets and distributes proceeds by statutory priority (§§507, 726).
- Subchapter V (“Chapter 5”) is a fast track for small-business debtors under a statutory debt cap, but SEC-reporting companies are excluded (§101(51D)) — so it rarely applies to listed companies.
What typically triggers a filing
- Payment default or covenant breach lenders will not waive; a debt maturity that cannot be refinanced.
- Auditor going-concern doubt (ASC 205-40 / PCAOB AS 2415) — often itself a default trigger in loan agreements.
- Creditors can force a case with an involuntary petition (§303) if debts are not paid as they come due.
- Delisting after sustained sub-$1 prices or equity deficits cuts off equity funding.
Transactions shortly before filing can be clawed back (preferences — 90 days, §547; fraudulent transfers — 2 years, §548).
Frequently asked questions
What do TransAlta Corporation's financial-health indicators show?
As of 2026-10-08, TransAlta Corporation's public financial data places it in the 'Watch' band with a distress score of 38/100, driven by operating profit does not cover interest, ohlson o-score signals likely failure and steep revenue decline. This is a statistical screen of reported numbers — it does not mean the company is insolvent, has defaulted or will enter insolvency proceedings.
What is TransAlta Corporation's financial distress score?
38/100 ('Watch'). Ohlson O-score 1.0 (model 1-year failure probability 73%). Merton distance-to-default 2.75 σ (model default probability 0.3%).
What works in TransAlta Corporation's favour?
Operating cash flow is positive over the latest 12 months.
How are shareholders treated if a company enters insolvency?
In a Chapter 11 reorganisation the absolute priority rule pays secured lenders, then unsecured creditors, before shareholders — so existing shares are usually cancelled or heavily diluted. In Chapter 7 the company is liquidated and shareholders rarely recover anything.
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Methodology
Score = capped sum of rule-based red flags across seven dimensions (liquidity, solvency, profitability, cash flow, sales trend, market signal, news). Ohlson O-score (1980) gives an accounting-based 1-year failure probability; Merton distance-to-default (Bharath & Shumway 2008) gives a market-implied probability. Financial institutions use a capital-based rule set. Recalculated every trading day from the latest filings, prices and news.