Altman Z-Score Calculator — Bankruptcy Risk Predictor
Calculate the Altman Z-Score to predict bankruptcy risk.
Enter 5 financial ratios and see if a company is safe, in the grey zone, or in distress.
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:
| Ratio | Formula | What It Measures |
|---|---|---|
| A, Working Capital / Total Assets | (Current Assets - Current Liabilities) / Total Assets | Can the company pay its short-term bills? Like checking if you have enough cash to cover this month’s rent. |
| B, Retained Earnings / Total Assets | Retained Earnings / Total Assets | How much profit has the company saved up over time? A young company scores low here. |
| C, EBIT / Total Assets | Earnings Before Interest & Taxes / Total Assets | How profitable is the company relative to its size? This is the most heavily weighted ratio (×3.3). |
| D, Market Value of Equity / Total Liabilities | Market Cap / Total Liabilities | How much do investors value the company compared to what it owes? |
| E, Sales / Total Assets | Revenue / Total Assets | How efficiently does the company use its assets to generate sales? |
How to Interpret the Z-Score
| Z-Score | Zone | Meaning |
|---|---|---|
| Above 2.99 | Safe Zone | The company is financially healthy. Low bankruptcy risk. |
| 1.81 to 2.99 | Grey Zone | Uncertain, the company could go either way. Needs closer monitoring. |
| Below 1.81 | Distress Zone | High risk of bankruptcy within 2 years. Serious financial trouble. |
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
Important Limitations
The original Z-Score was designed for public manufacturing companies. Altman later created modified versions for private companies (Z’-Score) and non-manufacturing companies (Z’’-Score). This calculator uses the original public-company formula.
The Z-Score is a screening tool, not a definitive verdict. Always combine it with other analysis before making investment decisions.
How we build and check this calculator
This calculator runs entirely in your browser, so the numbers you enter stay on your device. The math behind it is written by hand and tested against worked examples and standard references before the page goes live.
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