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Altman Z-Score Calculator

Calculate the Altman Z-Score to predict the likelihood of corporate bankruptcy using financial ratios.

Note

Important Financial Disclaimer

This calculator provides estimates based on standard financial formulas from verified references. Results are for informational and educational purposes only and should not be considered as professional financial, investment, or tax advice.

For important financial decisions such as loans, investments, mortgages, retirement planning, or tax matters, please consult with qualified financial advisors, certified financial planners, or licensed tax professionals who can review your specific situation.

Calculations may not account for all variables specific to your circumstances, local regulations, or current market conditions. Always verify results and consult professionals before making financial commitments.

Not a substitute for professional financial advice

Financial Data

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Altman Z-Score

3.70

Safe Zone

Low probability of bankruptcy

Score Thresholds

Safe Zone> 2.99
Grey Zone1.81 - 2.99
Distress Zone< 1.81

Component Ratios

X1: Working Capital / Assets25.00%
X2: Retained Earnings / Assets20.00%
X3: EBIT / Assets15.00%
X4: Equity / Total Debt1.88
X5: Sales / Assets1.50

What is the Altman Z-Score?

The Altman Z-Score is a formula developed by NYU Professor Edward Altman in 1968 that predicts the probability of a company going bankrupt within two years. It combines five financial ratios to create a single score indicating financial health.

Z-Score interpretation:

  • Z > 2.99: Safe zone - low bankruptcy risk
  • 1.81 < Z < 2.99: Grey zone - moderate risk, needs monitoring
  • Z < 1.81: Distress zone - high bankruptcy probability

The Z-Score has proven remarkably accurate, predicting bankruptcy with 80-90% accuracy one year before the event in original studies.

Altman Z-Score Formula (Public Manufacturing)

The original Z-Score formula for public manufacturing companies:

Original Z-Score

Z = 1.2×A + 1.4×B + 3.3×C + 0.6×D + 1.0×E

Where:

  • A= Working Capital / Total Assets
  • B= Retained Earnings / Total Assets
  • C= EBIT / Total Assets
  • D= Market Value of Equity / Total Liabilities
  • E= Sales / Total Assets

Z-Score Variations

Z'-Score (Private Companies):

  • Uses book value of equity instead of market value
  • Z' = 0.717×A + 0.847×B + 3.107×C + 0.420×D + 0.998×E
  • Safe zone: Z' > 2.9
  • Distress zone: Z' < 1.23

Z''-Score (Non-Manufacturing/Emerging Markets):

  • Removes asset turnover to reduce industry bias
  • Z'' = 6.56×A + 3.26×B + 6.72×C + 1.05×D
  • Safe zone: Z'' > 2.6
  • Distress zone: Z'' < 1.1

Choose the right model: Use original for public manufacturers, Z' for private companies, Z'' for non-manufacturing or service firms.

Understanding the Five Ratios

A: Working Capital / Total Assets

  • Measures short-term liquidity
  • Negative value is a red flag
  • Shows ability to meet short-term obligations

B: Retained Earnings / Total Assets

  • Measures cumulative profitability over time
  • Young companies typically score lower
  • Indicates reliance on debt vs. earnings for growth

C: EBIT / Total Assets (ROA before interest/taxes)

  • Measures operating efficiency
  • Most important predictor (highest weight × coefficient)
  • Shows earning power of assets

D: Market Value of Equity / Total Liabilities

  • Market's assessment of value vs. debt burden
  • Declining stock price signals market concern
  • Shows how much asset value can decline before insolvency

E: Sales / Total Assets (Asset Turnover)

  • Measures efficiency of asset use
  • Varies significantly by industry
  • Removed in Z'' model for this reason

How to Use This Calculator

Our Z-Score calculator assesses bankruptcy risk:

  1. Select Company Type:
    • Public manufacturing
    • Private company
    • Non-manufacturing/service
  2. Enter Financial Data:
    • Current assets and liabilities (for working capital)
    • Total assets
    • Retained earnings
    • EBIT (operating income)
    • Market cap or book equity
    • Total liabilities
    • Total sales/revenue

Results include:

  • Z-Score and zone classification
  • Individual ratio breakdown
  • Comparison to benchmarks
  • Historical trend (if multiple periods entered)

Limitations of the Z-Score

Model limitations:

  • Developed for manufacturing; less accurate for financials and utilities
  • Based on 1960s data - business conditions have changed
  • Doesn't account for cash flow quality
  • Can be manipulated through accounting choices

When Z-Score may be misleading:

  • Financial companies (banks, insurers) - use different models
  • Very young companies (low retained earnings)
  • Companies with significant off-balance-sheet items
  • Industries with unusual asset structures

Best practices:

  • Use as one tool among many, not sole indicator
  • Track trends over time, not just single point
  • Compare to industry peers
  • Combine with cash flow analysis

Worked Examples

Public Manufacturing Company Z-Score

Problem:

Working Capital: $50M, Total Assets: $200M, Retained Earnings: $80M, EBIT: $30M, Market Cap: $150M, Total Liabilities: $100M, Sales: $250M.

Solution Steps:

  1. 1A: $50M / $200M = 0.25
  2. 2B: $80M / $200M = 0.40
  3. 3C: $30M / $200M = 0.15
  4. 4D: $150M / $100M = 1.50
  5. 5E: $250M / $200M = 1.25
  6. 6Z = 1.2(0.25) + 1.4(0.40) + 3.3(0.15) + 0.6(1.50) + 1.0(1.25)
  7. 7Z = 0.30 + 0.56 + 0.495 + 0.90 + 1.25 = 3.51

Result:

Z-Score of 3.51 is in the safe zone (>2.99). Low bankruptcy risk based on financial metrics.

Company in Distress Zone

Problem:

Working Capital: -$10M, Total Assets: $100M, Retained Earnings: $5M, EBIT: $2M, Market Cap: $20M, Total Liabilities: $80M, Sales: $120M.

Solution Steps:

  1. 1A: -$10M / $100M = -0.10
  2. 2B: $5M / $100M = 0.05
  3. 3C: $2M / $100M = 0.02
  4. 4D: $20M / $80M = 0.25
  5. 5E: $120M / $100M = 1.20
  6. 6Z = 1.2(-0.10) + 1.4(0.05) + 3.3(0.02) + 0.6(0.25) + 1.0(1.20)
  7. 7Z = -0.12 + 0.07 + 0.066 + 0.15 + 1.20 = 1.37

Result:

Z-Score of 1.37 is in the distress zone (<1.81). High bankruptcy risk - negative working capital and low profitability are concerning.

Private Company Z'-Score

Problem:

Same company but private. Use book value of equity ($25M) instead of market cap.

Solution Steps:

  1. 1Using Z' formula for private companies
  2. 2A: -$10M / $100M = -0.10
  3. 3B: $5M / $100M = 0.05
  4. 4C: $2M / $100M = 0.02
  5. 5D: $25M / $80M = 0.3125 (book value)
  6. 6E: $120M / $100M = 1.20
  7. 7Z' = 0.717(-0.10) + 0.847(0.05) + 3.107(0.02) + 0.420(0.3125) + 0.998(1.20)
  8. 8Z' = -0.072 + 0.042 + 0.062 + 0.131 + 1.198 = 1.36

Result:

Z'-Score of 1.36 is in the distress zone (<1.23 is distress for Z'). Similar conclusion as public company analysis.

Tips & Best Practices

  • ✓Use the appropriate model version for your company type
  • ✓Track Z-Score trends over time, not just single calculations
  • ✓Compare to industry peers for context
  • ✓Don't use for financial sector companies
  • ✓Combine with cash flow analysis for complete picture
  • ✓Investigate any significant quarter-to-quarter changes
  • ✓Be cautious with companies that have negative retained earnings

Related Calculators

Current Ratio Calculator

Liquidity analysis

Debt Service Coverage Calculator

Debt payment ability

EBITDA Calculator

Operating profitability

Working Capital Calculator

Short-term liquidity

Frequently Asked Questions

Original research showed 80-90% accuracy predicting bankruptcy within one year. Accuracy decreases for longer predictions. It's been validated across different time periods and countries, though accuracy varies. Best used as an early warning signal alongside other analysis.
No, the original Z-Score isn't appropriate for financial institutions. Their balance sheets are fundamentally different (deposits are liabilities, loans are assets). Banks have their own bankruptcy prediction models like CAMELS ratings and regulatory capital ratios.
The grey zone (1.81-2.99) indicates uncertainty. Monitor closely, look at trends (improving or worsening?), and analyze other factors like cash flow, industry conditions, and management quality. Grey zone companies need deeper due diligence.
No. Z-Score measures financial health at a point in time. It can't predict fraud, sudden market changes, or catastrophic events. Enron had a reasonable Z-Score before its fraud was discovered. Use Z-Score as one tool among many.
Calculate quarterly when financial statements are released. Track the trend - a declining Z-Score is concerning even if still in the safe zone. Sudden drops warrant investigation. Compare across economic cycles.
Retained earnings indicate accumulated profits reinvested in the business over time. Companies with high retained earnings have built their asset base through operations, not debt. Low retained earnings (common in young or dividend-heavy companies) suggests less financial cushion.

Sources & References

Last updated: 2026-06-05

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Sources

  • •Reserve Bank of India (RBI) — Financial regulations, lending rates, and monetary policy guidelines. rbi.org.in
  • •Consumer Financial Protection Bureau (CFPB) — Consumer finance guidelines, mortgage and loan disclosure standards. consumerfinance.gov
  • •Securities and Exchange Board of India (SEBI) — Investment and securities market regulations. sebi.gov.in
  • •Investopedia — Financial formulas, definitions, and educational content. investopedia.com

For a complete list of all references used across the site, visit our full sources page.

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Editorial Note

MyCalcBuddy Editorial Team

This page is maintained as an educational calculator reference.

Source

Formula Source: Fundamentals of Financial Management

by Brigham & Houston

UpdatedLast reviewed: May 2026
CheckedFormula checks are based on standard references and internal QA review.