Altman Z-Score
Z-Score Results
| Component | Formula | Value | Weight | Weighted |
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| Z-Score Range | Interpretation | Status |
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Formula
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
Limitations
• Less accurate for private companies
• Industry variations exist
• Qualitative factors not included
| Date | Z-Score | Status | Assets | Currency | Actions |
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Altman Z-Score Calculator: Complete Guide
Imagine you could look into the financial future of a company and predict whether it might face bankruptcy within the next two years. That's exactly what the Altman Z-Score does! Created by Professor Edward Altman in 1968, this powerful formula has become the gold standard for predicting corporate bankruptcy risk.
What is the Altman Z-Score?
Simple Explanation
The Altman Z-Score is like a financial health checkup for companies. It combines five important financial ratios into one simple score that predicts whether a company might go bankrupt within the next 2 years.
The Z-Score looks at five aspects: liquidity, profitability, efficiency, market confidence, and sales power.
Try Our Altman Z-Score Calculator
Don't worry about complex formulas - just enter your company's financial numbers and let our calculator do the work.
How to Use the Calculator
The Altman Z-Score Formula
The Formula
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
Variable Definitions
Worked Example
Example Calculation
Company Data: WC: $200,000, Assets: $1,000,000, RE: $300,000, EBIT: $150,000, Mkt Eq: $500,000, Debt: $400,000, Sales: $800,000
X1: 0.20, X2: 0.30, X3: 0.15, X4: 1.25, X5: 0.80
Z = 1.2(0.20) + 1.4(0.30) + 3.3(0.15) + 0.6(1.25) + 1.0(0.80) = 2.705
Advantages of This Calculator
- Multi-currency: Supports 50+ currencies.
- Component breakdown: See each factor's contribution.
- Risk interpretation: Clear status with ranges.
- History: Save and compare scenarios.
- Export: Download as TXT, HTML, PDF.
Pro Tip: Compare with Competitors
Always compare your Z-Score with similar companies in your industry. A score that's safe for one industry might be risky for another.
Tips for Using the Z-Score
- Track over time: Is your score improving or declining?
- Look at all components: Which area needs the most improvement?
- Use as a discussion tool: Talk about results with your team.
- Don't panic over one score: Look at trends over several years.
Common Mistakes to Avoid
- Using book value instead of market value: For public companies, use market value.
- Ignoring industry context: Different industries have different average scores.
- Over-relying on one metric: Consider other financial and qualitative factors.
Frequently Asked Questions
A formula that predicts bankruptcy risk using 5 financial ratios. It's like a financial health checkup score.
Professor Edward Altman created it in 1968 at New York University.
Safe Zone - financially healthy with low bankruptcy risk.
Distress Zone - high bankruptcy risk. Serious warning sign.
All from financial statements: Balance Sheet (assets, liabilities) and Income Statement (EBIT, sales).
For public: use market value. For private: use book value of equity.
72% accurate at predicting bankruptcy 1 year in advance.
Works best for manufacturing. Modified versions exist for service and private companies.
Earnings Before Interest and Taxes - operating profit on the Income Statement.
Current Assets - Current Liabilities. On the Balance Sheet.
Profits kept in the company (not paid as dividends). On the Balance Sheet.
Caution - not panic. Monitor finances closely and make improvements.
At least annually, or quarterly to monitor trends.
No, only probability of bankruptcy within the next 2 years.
Compare with similar companies in your industry. Different industries have different averages.
No! It's one tool among many. Consider management quality, market conditions, etc.