What the Altman Z-Score measures
Combines liquidity, profitability, leverage, solvency, and activity ratios into one composite. Three zones: safe (Z > 2.99), grey (1.81–2.99), distress (Z < 1.81).
Altman Z-Score Calculator
Calculate the Altman Z-Score from five financial ratios to classify a company's bankruptcy risk as safe, grey zone, or distress.
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Financial Analysis
Altman Z-Score explained: formula, calculation, and bankruptcy prediction
The Altman Z-Score uses five financial ratios to estimate bankruptcy probability. Developed in 1968, it remains one of the most widely cited bankruptcy prediction models.
Z-Score formula
Five ratios with fixed coefficients from discriminant analysis.
Z = 1.2×X₁ + 1.4×X₂ + 3.3×X₃ + 0.6×X₄ + 1.0×X₅
X₁ = WC/TA, X₂ = RE/TA, X₃ = EBIT/TA, X₄ = MVE/TL, X₅ = Sales/TA.
Understanding each component
X₁ measures liquidity, X₂ cumulative profitability, X₃ operating profitability (highest weight), X₄ market leverage, X₅ asset efficiency.
Worked example
WC 500K, TA 2M, RE 300K, EBIT 250K, MVE 1.5M, TL 800K, Sales 3M. Z = 3.55. Safe zone.
Model variants
Z'-Score for private firms, Z''-Score for non-manufacturing. This calculator uses the original 1968 model.
Limitations
Calibrated on 1960s US manufacturing. May not apply to service firms, financials, or startups.
Frequently asked questions
Above 2.99 is safe. 1.81–2.99 is grey. Below 1.81 is distress.
Use Z'-Score for private or Z''-Score for non-manufacturing firms.
95% one year before failure in original study, ~72% at two years.
EBIT/TA was the strongest discriminator between bankrupt and surviving firms.
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