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.
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.