Altman Z-score
A bankruptcy-risk model combining five balance-sheet and income ratios.
Formula
Z = 1.2 × Working capital ÷ Total assets + 1.4 × Retained earnings ÷ Total assets + 3.3 × EBIT ÷ Total assets + 0.6 × Market cap ÷ Total liabilities + 1.0 × Revenue ÷ Total assets
How to read it
Below 1.8 is the classic distress zone; above 3 is considered safe.
How to use it
A first screen for financial distress.
Limitations
Built on manufacturers in the 1960s; less reliable for asset-light and service businesses.
In Kereon
Investing · company. Not computed for banks and insurers.
Investing · company. The original model, from the latest annual filing and today's market cap.
Also called: altman z, altman z-score, z-score.