Altman Z-Score
 |
Definition of 'Altman Z-Score'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. |
 |
Investopedia explains '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 Definitions
Articles Of Interest
-
How To Calculate A Z-Score
Investors need to know how to detect signs of looming bankruptcy. The Z-score can help. -
An Overview Of Corporate Bankruptcy
If a company files for bankruptcy, stockholders have the most to lose. Find out why. -
How Risk Free Is The Risk-Free Rate Of Return?
This rate is rarely questioned - unless the economy falls into disarray. -
Top 4 Most Scandalous Insider Trading Debacles
Here we look at some of the landmark incidents of insider trading. -
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. -
Regression Basics For Business Analysis
This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how. -
The Copper King: An Empire Built On Manipulation
Find out how Yasuo Hamanaka's actions in the copper market forever changed the rules for commodity traders. -
Understanding Leverage Ratios
Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. To lower their risk, investors use a variety of leverage ratios - including the debt, ... -
7 Controversial Investing Theories
We take a closer look at the theories that attempt to explain and influence the market. -
Breaking Down The Geometric Mean
Understanding portfolio performance, whether for a self-managed, discretionary portfolio or a non-discretionary portfolio, is vital to determining whether the portfolio strategy is working or ...
Free Annual Reports