Formula
Z-Score
=
1.2·X₁
+
1.4·X₂
+
3.3·X₃
+
0.6·X₄
+
1.0·X₅
- X₁ = Working Capital / Total Assets
- X₂ = Retained Earnings / Total Assets
- X₃ = EBIT / Total Assets
- X₄ = Market Cap / Total Liabilities
- X₅ = Revenue / Total Assets
Alpha Finance
Altman Z-Score of —
Z-Score
—
Definition
The Altman Z-Score, developed by economist Edward Altman, predicts the probability of bankruptcy by combining several key financial ratios. A higher score indicates lower financial risk and greater stability, while a low score suggests potential distress. Generally, a score above 3.0 is considered safe, between 1.8 and 3.0 indicates a gray zone, and below 1.8 signals a high risk of bankruptcy.
Safe Zone> 3.0
Gray Zone1.8 – 3.0
Distress Zone< 1.8
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