Altman Z-Score Calculator
Calculate the Altman Z-Score to predict corporate bankruptcy probability using five financial ratios. Assess financial distress with working capital, retained earnings, EBIT, market value of equity, and sales ratios.
About This Calculator
The Altman Z-Score Calculator helps investors, financial analysts, and business owners assess the bankruptcy risk of a publicly traded company using the Altman Z-Score model. Developed by Professor Edward Altman in 1968, this widely-used formula combines five financial ratios into a single score that predicts the likelihood of corporate default within two years.
The calculator uses the classic five-factor model: Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 1.0(X5), where X1 is Working Capital / Total Assets (liquidity measure), X2 is Retained Earnings / Total Assets (cumulative profitability), X3 is EBIT / Total Assets (operating efficiency), X4 is Market Value of Equity / Total Liabilities (leverage), and X5 is Sales / Total Assets (asset turnover).
Enter the seven required inputs from the company's latest financial statements — all in the same currency — to get the Z-Score, zone classification, and a detailed breakdown of each ratio's contribution. The score is interpreted as follows: above 3.0 indicates a safe zone (low bankruptcy risk), between 1.81 and 3.0 is the grey zone (caution advised), and below 1.81 signals the distress zone (high bankruptcy probability).
Regional Notes: The Altman Z-Score is a universal financial model applied worldwide. For US-listed companies, use market capitalization from stock exchanges like NYSE or NASDAQ. For Indian companies listed on BSE or NSE, use the market value of equity from the latest trading price. For UK companies on the London Stock Exchange, use the latest market cap from the LSE. For private companies in any region, a modified Z-Score formula replaces market value of equity with the book value of equity.
Frequently Asked Questions
What is the Altman Z-Score?
The Altman Z-Score is a bankruptcy prediction model developed by Professor Edward Altman in 1968. It uses five financial ratios weighted by coefficients derived from discriminant analysis to quantify the probability of a company defaulting on its debt obligations.
How is the Altman Z-Score calculated?
The Altman Z-Score is calculated using the formula: Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 1.0(X5), where X1 is Working Capital divided by Total Assets, X2 is Retained Earnings divided by Total Assets, X3 is EBIT divided by Total Assets, X4 is Market Value of Equity divided by Total Liabilities, and X5 is Sales divided by Total Assets.
What is a good Altman Z-Score?
An Altman Z-Score above 3.0 indicates a safe zone with low bankruptcy probability. A score between 1.81 and 3.0 is the grey zone requiring further analysis. A score below 1.81 indicates the distress zone with high bankruptcy probability. The higher the score, the lower the credit risk.
Can the Altman Z-Score be negative?
Yes, the Altman Z-Score can be negative when a company has negative EBIT, negative working capital, or negative retained earnings relative to its total assets. Negative scores indicate severe financial distress and a very high probability of bankruptcy.
Is the Altman Z-Score applicable to all companies?
The original Altman Z-Score was designed for publicly traded manufacturing companies. For private firms, a modified Z-Score formula (Z) replaces market value of equity with book value of equity. For non-manufacturing firms, Altman developed a separate model that excludes the sales-to-assets ratio to reduce industry bias.
What inputs do I need to calculate the Altman Z-Score?
You need seven financial figures: Working Capital (current assets minus current liabilities), Total Assets, Retained Earnings, EBIT (Earnings Before Interest and Taxes), Market Value of Equity (share price multiplied by shares outstanding), Total Liabilities, and Sales or total revenue. All figures must be in the same currency.
What are the limitations of the Altman Z-Score?
The Altman Z-Score was developed using data from US manufacturing firms in the 1960s and may be less accurate for service companies, financial institutions, emerging markets, or smaller private firms. It should be used alongside other financial analysis tools and not as the sole indicator of financial health.
How often should I calculate the Altman Z-Score?
Financial analysts typically calculate the Altman Z-Score quarterly or annually when reviewing financial statements. Investors monitoring a specific company may calculate it after each earnings release to track changes in bankruptcy risk over time.