Altman Z-Score — Altman Z-Score
DeepScreen explains Altman Z-Score as follows: The Altman Z-Score combines five balance-sheet and income-statement measures to estimate financial-distress risk. Higher readings generally indicate a wider safety margin.
Formula
1.2×working capital/assets + 1.4×retained earnings/assets + 3.3×EBIT/assets + 0.6×equity/liabilities + 1.0×sales/assets
Illustrative example
First identify the model version and company type, then collect every required statement input for the same period. A result from a different version should not be compared with the original public-manufacturer thresholds.
Educational example; these are not reported company figures.
How to interpret it
- Above 3 is commonly considered the safer zone for the original public-manufacturer model.
- Below 1.8 is commonly considered a distress zone.
Limitations
- Thresholds vary by company type and model version.
- It should not be applied when required inputs are missing.
Frequently asked questions
- What is Altman Z-Score?
- The Altman Z-Score combines five balance-sheet and income-statement measures to estimate financial-distress risk. Higher readings generally indicate a wider safety margin.
- How is Altman Z-Score calculated?
- 1.2×working capital/assets + 1.4×retained earnings/assets + 3.3×EBIT/assets + 0.6×equity/liabilities + 1.0×sales/assets
- What should investors watch for with Altman Z-Score?
- Thresholds vary by company type and model version. It should not be applied when required inputs are missing.
. Educational analytical content, not investment advice.