How this calculator works
The Altman Z-score combines five accounting and market ratios, each weighted by the coefficients estimated in Altman's 1968 study of US manufacturers. A higher score means a lower estimated chance of bankruptcy. The published cut-offs split results into a safe zone above 2.99, a grey zone from 1.81 to 2.99, and a distress zone below 1.81. Working capital is current assets minus current liabilities, and market value of equity is shares outstanding times share price. The original model was fitted to public manufacturers; banks, private firms and service companies need the variants Altman later published, so treat the zone as a screening signal, not a forecast.
Formula
Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0 X5, where X1 = (current assets - current liabilities) / total assets, X2 = retained earnings / total assets, X3 = EBIT / total assets, X4 = market value of equity / total liabilities, and X5 = sales / total assets. Zones: Z > 2.99 safe, 1.81 <= Z <= 2.99 grey, Z < 1.81 distress.
Worked example
A manufacturer with $1,000,000 of assets, $400,000 of liabilities, $300,000 of current assets, $150,000 of current liabilities, $200,000 of retained earnings, $120,000 of EBIT and $1,500,000 of sales, with 100,000 shares at $12, scores X1 = 0.15, X2 = 0.20, X3 = 0.12, X4 = 3.00 and X5 = 1.50. The Z-score is 1.2(0.15) + 1.4(0.20) + 3.3(0.12) + 0.6(3.00) + 1.50 = 4.156, in the safe zone.
Advertisement
Frequently asked questions
Which Z-score version applies to a private company?
Altman published a private-firm variant, Z-prime, that replaces the market value of equity with book equity and uses different coefficients. This page implements the original public-manufacturer model only.
Can I use this for a bank or an insurer?
Not directly. Banks have different balance sheets and Altman published a separate Z-score double-prime model for non-manufacturers and emerging markets that omits the sales ratio.
What does the grey zone mean?
The model was not confident in either direction for that range. Look at the individual ratios and at cash flow, liquidity and debt maturity rather than treating 2.99 or 1.81 as a bright line.
Why is market value of equity used rather than book equity?
The market price captures investors' current assessment of the firm's prospects. That makes the score move with the share price even when the accounts have not changed.