Altman Z-Score Calculator - Bankruptcy Risk Predictor

What Is the Altman Z-Score?

The Altman Z-Score is a formula that predicts whether a company is likely to go bankrupt within the next two years. It was created in 1968 by Edward Altman, a professor at New York University. In his original study, the model correctly flagged about 72% of companies as bankrupt or solvent up to two years before it happened. More than 50 years on, banks, lenders, and investors still reach for it as a fast first screen.

Think of it like a financial health check-up for a company. Just like a doctor checks your blood pressure, cholesterol, and heart rate to assess your health, the Z-Score checks five financial “vital signs” to assess a company’s financial health.

The Z-Score Formula

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

Where each letter represents a financial ratio:

How to Interpret the Z-Score

Worked Example

Suppose a manufacturing company has:

• Working Capital / Total Assets (A) = 0.20
• Retained Earnings / Total Assets (B) = 0.15
• EBIT / Total Assets (C) = 0.10
• Market Equity / Total Liabilities (D) = 1.50
• Sales / Total Assets (E) = 1.80

Step 1: Z = 1.2 × 0.20 = 0.24 Step 2: Z = 0.24 + 1.4 × 0.15 = 0.24 + 0.21 = 0.45 Step 3: Z = 0.45 + 3.3 × 0.10 = 0.45 + 0.33 = 0.78 Step 4: Z = 0.78 + 0.6 × 1.50 = 0.78 + 0.90 = 1.68 Step 5: Z = 1.68 + 1.0 × 1.80 = 1.68 + 1.80 = 3.48

A Z-Score of 3.48 puts this company firmly in the Safe Zone — financially healthy.

Where to Find These Numbers

All five inputs come from a company’s financial statements:

• Working Capital = Current Assets minus Current Liabilities (from the Balance Sheet)
• Retained Earnings = Found on the Balance Sheet under Shareholders’ Equity
• EBIT = Operating Income on the Income Statement
• Total Assets = Found on the Balance Sheet
• Market Value of Equity = Stock Price × Number of Shares Outstanding
• Total Liabilities = Found on the Balance Sheet
• Sales (Revenue) = Top line of the Income Statement

The Three Models

The original Z-Score was fitted on public manufacturing companies, which is a narrower group than most people realise. Altman published two revisions, and this calculator runs all three. Pick the one that matches the company, because the weights and the zone boundaries both change.

Two things to watch when you switch models. In Z’ and Z’’, D changes meaning: it becomes the BOOK value of equity over total liabilities rather than market capitalisation, which is the whole point since a private company has no share price. And Z’’ drops the sales-to-assets term entirely, because asset turnover ranges so widely across service industries that it carried no predictive signal.

The scores are not comparable across models. A 2.7 is Grey under the original and Safe under Z’'.

The Z-Score is a screening tool, not a definitive verdict. Always combine it with other analysis before making investment decisions.