Hello All,

Im trying to understand how Damodaran calculates t stat to Estimate the Probability of Default of a company using operating income and debt level.

in this link, http://people.stern.nyu.edu/adamodar/pdfiles/cf2E/capstru.pdf PAG 43-45, he uses the following formula to calculate the t stat:

T statistic = (Current EBITDA - Debt Payment) / sOI (Current Operating Income) = ( 3,237 - 1,003 million) / (.3583 * $3237) = 1.93

I really dont get how he derives this formula. Specially, I dont understand how he does this part 3583 * $3237. IMO, he is multiplying standard deviation to the OI but I dont get why.

Can someone kindly explain how this works?

thanks a lot.

EA.