Altman Z-Score Calculator
Predict bankruptcy probability using the famous Edward Altman financial distress model
Calculate Altman Z-Score
Core Financial Data
Total revenue for the period
Earnings before interest and taxes
Total company assets
Total company liabilities
Additional Data Input Method
Direct Financial Values
Current assets - current liabilities
Accumulated undistributed profits
Market capitalization
Altman Z-Score Results
Bankruptcy Risk Analysis
Example: Company Alpha Z-Score Analysis
Company Alpha Financials
Sales: $10,000,000
EBIT: $4,000,000
Total Assets: $50,000,000
Total Liabilities: $20,000,000
Market Cap: $20,000,000 (1M shares × $20)
Net Working Capital: $400,000 (A/R + Inventory - A/P)
Retained Earnings: $500,000 (Net Income - Dividends)
Step-by-Step Z-Score Calculation
Step 1 - NWC/Assets: $400,000 ÷ $50,000,000 = 0.008
Step 2 - RE/Assets: $500,000 ÷ $50,000,000 = 0.01
Step 3 - EBIT/Assets: $4,000,000 ÷ $50,000,000 = 0.08
Step 4 - MVE/Liabilities: $20,000,000 ÷ $20,000,000 = 1.0
Step 5 - Sales/Assets: $10,000,000 ÷ $50,000,000 = 0.2
Step 6 - Z-Score: 1.2(0.008) + 1.4(0.01) + 3.3(0.08) + 0.6(1.0) + 1.0(0.2) = 1.088
Result: Z-Score of 1.088 indicates high bankruptcy risk
Z-Score Interpretation
Safe Zone
Low bankruptcy probability
Strong financial health
Gray Zone
Uncertain conditions
Requires further analysis
Distress Zone
High bankruptcy risk
Financial distress likely
Formula Components
NWC/TA (×1.2): Working capital liquidity measure
RE/TA (×1.4): Accumulated profitability measure
EBIT/TA (×3.3): Operating efficiency measure
MVE/TL (×0.6): Market leverage measure
Sales/TA (×1.0): Asset utilization measure
Understanding the Altman Z-Score
What is the Altman Z-Score?
The Altman Z-Score is a bankruptcy prediction model developed by Professor Edward Altman in 1968. It combines five financial ratios into a single score that predicts the likelihood of bankruptcy within two years with approximately 90% accuracy.
Why Use the Z-Score?
- •Comprehensive bankruptcy risk assessment
- •Credit analysis and lending decisions
- •Investment screening and risk management
- •Early warning system for financial distress
Altman Z-Score Formula
Z = 1.2(NWC/TA) + 1.4(RE/TA) + 3.3(EBIT/TA) + 0.6(MVE/TL) + 1.0(Sales/TA)
Where:
NWC = Net Working Capital
RE = Retained Earnings
EBIT = Earnings Before Interest & Taxes
MVE = Market Value of Equity
TA = Total Assets, TL = Total Liabilities
Model Accuracy
The original Altman Z-Score correctly predicted bankruptcy in 94% of cases one year prior and 72% of cases two years prior to the actual bankruptcy event.
Note: Best suited for manufacturing companies; modified versions exist for other industries