The Altman Z-Score is a measure of a company’s health and likelihood of bankruptcy. It was developed by Edward Altman in 1968 when he was a finance professor at NYU. This is a mathematical formula which uses financial data from company’s income statement and balance sheet. It generates a number which tells you the likelihood of bankruptcy or financial embarrassment. It has a reported 72% accuracy in predicting bankruptcies two years in advance.
Z-Score Formula for Public Companies:
T1 = Working Capital / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Market Value of Equity / Total Liabilities
T5 = Sales/ Total Assets
Z-Score Bankruptcy Model:
Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + .999T5
Zones of Discrimination:
Z > 2.99 -“Safe” Zone
1.8
Z
Download free spreadsheet for Altman Z-Score Calculation
Old School Value has a spreadsheet for calculating Z score for any company by typing in a ticker of the company.
Z-Score Formula for Private Firms:
T1 = (Current Assets-Current Liabilities) / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Book Value of Equity / Total Liabilities
T5 = Sales/ Total Assets
Z' Score Bankruptcy Model:
Z' = 0.717T1 + 0.847T2 + 3.107T3 + 0.420T4 + 0.998T5
Zones of Discrimination:
Z' > 2.9 -“Safe” Zone
1.23
Z'
Download free spreadsheet for Altman Z-Score Calculation (Private Firms)
Z-Score for Non Manufacturer Industrials and Emerging Market Credits:
T1 = (Current Assets-Current Liabilities) / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Book Value of Equity / Total Liabilities
Z-Score Bankruptcy Model:
Z = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4
Zones of Discrimination:
Z > 2.6 -“Safe” Zone
1.1
Z
Download free spreadsheet for Altman Z-Score Calculation (Non Manufacturer Industrial and Emerging Market Credits)
Reference:
Altman, Edward I. (July, 2000). "Predicting Financial Distress of Companies" http://pages.stern.nyu.edu/~ealtman/Zscores.pdf
This article is also available at http://sudhanshujain.wordpress.com/
Z-Score Formula for Public Companies:
T1 = Working Capital / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Market Value of Equity / Total Liabilities
T5 = Sales/ Total Assets
Z-Score Bankruptcy Model:
Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + .999T5
Zones of Discrimination:
Z > 2.99 -“Safe” Zone
1.8
Z
Download free spreadsheet for Altman Z-Score Calculation
Old School Value has a spreadsheet for calculating Z score for any company by typing in a ticker of the company.
Z-Score Formula for Private Firms:
T1 = (Current Assets-Current Liabilities) / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Book Value of Equity / Total Liabilities
T5 = Sales/ Total Assets
Z' Score Bankruptcy Model:
Z' = 0.717T1 + 0.847T2 + 3.107T3 + 0.420T4 + 0.998T5
Zones of Discrimination:
Z' > 2.9 -“Safe” Zone
1.23
Z'
Download free spreadsheet for Altman Z-Score Calculation (Private Firms)
Z-Score for Non Manufacturer Industrials and Emerging Market Credits:
T1 = (Current Assets-Current Liabilities) / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Book Value of Equity / Total Liabilities
Z-Score Bankruptcy Model:
Z = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4
Zones of Discrimination:
Z > 2.6 -“Safe” Zone
1.1
Z
Download free spreadsheet for Altman Z-Score Calculation (Non Manufacturer Industrial and Emerging Market Credits)
Reference:
Altman, Edward I. (July, 2000). "Predicting Financial Distress of Companies" http://pages.stern.nyu.edu/~ealtman/Zscores.pdf
This article is also available at http://sudhanshujain.wordpress.com/
