Altman Z-Score

The Altman Z-score is a multivariate bankruptcy forecasting process for businesses. The formula indicates how probable a bankruptcy of the analyzed company within the next 2 years.

Z = 1.2x 1 + 1.4X 2 + 3,3X 3 + 0.6x 4 + 0,999X 5

Legend:

1 = (current assets – short-term liabilities) / balance sheet total
2 = retained earnings / balance sheet total
3 = earnings before interest and taxes (EBIT) / balance sheet total
4 = market value of equity / total liabilities
5 = sales / balance sheet total

Companies with a Z-factor score of less than 1.81 are considered to be highly insolvent at one-year standstill, companies with a Z score greater than 3.00 are considered to be at risk. The Altman Z score is not applied to financials.

Safe Zonegray areaInsecure zone
>3.001.81-3.00<1.81