# Altman Z-Score

## What is the 'Altman Z-Score'

The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy. The Altman Z-score, is based on five financial ratios that can be calculated from data found on a company's annual 10K report. The Altman Z-score is calculated as follows:

Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Where:

A = Working Capital/Total Assets
B = Retained Earnings/Total Assets
C = Earnings Before Interest & Tax/Total Assets
D = Market Value of Equity/Total Liabilities
E = Sales/Total Assets

A score below 1.8 means the company is probably headed for bankruptcy, while companies with scores above 3.0 are not likely to go bankrupt. The lower/higher the score, the lower/higher the likelihood of bankruptcy.

Next Up

## BREAKING DOWN 'Altman Z-Score'

NYU Stern Finance Professor, Edward Altman, developed the Altman Z-score formula in 1967. In 2012, he released an updated version called the Altman Z-score Plus, that can be used to evaluate both public and private companies, both manufacturing and nonmanufacturing companies and both U.S. and non-U.S. companies. Investors can use Altman Z-scores to help determine whether they should buy or sell a particular stock if they're concerned about the underlying company's financial strength. The Altman Z-score Plus can be used to evaluate corporate credit risk.

RELATED TERMS
1. ### Z-Score

A Z-Score is a statistical measurement of a score's relationship ...
2. ### Zeta Model

A mathematical formula developed in the 1960s by NYU Professor ...
3. ### Beta Risk

The probability that a false null hypothesis will be accepted ...

A number indicating whether a company is a good candidate to ...
5. ### Prepackaged Bankruptcy

A plan for financial reorganization that a company prepares in ...
6. ### Technical Bankruptcy

The state of a company or person who has defaulted on a financial ...
Related Articles

### What's a Z-Score?

In statistics, Z-score refers to how many standard deviations a particular data point is from the mean of the data. A Z-score of 1 means the data point is one standard deviation from the mean. ...
2. Investing

### How To Calculate A Z-Score

Investors need to know how to detect signs of looming bankruptcy. The Z-score can help.
3. Markets

### Avoid These Overvalued Blue Chips with Poor Financials (APA, CBS)

When you are looking for bargains in the stock market, limit your buying to stocks with a verified strong fiancial condition.
4. Markets

### 2 Safe and Cheap Long-Term Energy Stocks

Almost all energy-related stocks appear to be cheap right now. The key for long-term investors at this point in the market cycle is to buy those that are also safe enough to survive until commodity ...
5. Personal Finance

### Save \$30,000 For A Home Down Payment In 5 Months

Before tackling mortgage rates, home maintenance costs and utilities, every home buyer must first gather the funds for a mortgage loan down payment.
6. Investing

### Is Advanced Micro Devices Bankruptcy Imminent? (AMD, INTC)

Review the current financial condition of Advanced Micro Devices (AMD) and the consensus of opinion on whether the company is headed for bankruptcy.
7. Investing

### Taking Advantage Of Corporate Decline

A bankrupt company can provide great opportunities for savvy investors.
8. Investing

### Today's Top Young Investors

Given the very different world that we live in as compared to the one the Warren Buffett graduated into, young, hopeful investors should be looking up to people closer to their own age.
9. Investing

### Financial Ratios to Spot Companies Headed for Bankruptcy

Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
10. Markets

### Why Junk Bonds Are Aptly Named Right Now

Here's why junk bonds are likely to live up to their name in the not so distant future.
RELATED FAQS
1. ### How is the Altman Z-Score used in fundamental analysis?

Learn about the Altman Z-score, how it is calculated and how to interpret the Altman Z-score to assess the viability of a ... Read Answer >>
2. ### What does a Z-Score tell a stock analyst about the health of a company?

Learn about the Altman Z-score, what the Z-score measures and what it indicates to an analyst about the health of a company. Read Answer >>
3. ### How can an investor use the Z-Score to compare investment options?

Learn about the Altman Z-score, how it is calculated for public and private companies and how investors can use the measure ... Read Answer >>
4. ### What is the difference between standard deviation and z score?

Understand the basics of standard deviation and Z-score; learn how each is calculated and used in the assessment of market ... Read Answer >>
5. ### XYZ Company stocks have an expected return of 12% and a standard deviation of 8% ...

The correct answer is: D) First, transform the actual value of this outcome (-1.2%) into its standardized z-score: Zx= [(X ... Read Answer >>
6. ### How will bankruptcy affect my ability to get credit in the future?

Learn how filing bankruptcy affects your ability to obtain credit in the future, and find out how long a bankruptcy stays ... Read Answer >>
Hot Definitions
1. ### GBP

The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
2. ### Diversification

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
3. ### European Union - EU

A group of European countries that participates in the world economy as one economic unit and operates under one official ...
4. ### Sell-Off

The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
5. ### Brazil, Russia, India And China - BRIC

An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
6. ### Brexit

The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...