Calculator
Definition – What is an Altman Z-Score?
The Altman Z-Score gauges a manufacturing company’s probability of bankruptcy.
Formula – How to calculate Altman Z-Score
A = Working Capital / Total Assets
B = Retained Earnings / Total Assets
C = EBIT / Total Assets
D = Market Value of Equity / Total Liabilities
E = Sales / Total Assets
Altman Z-Score = (1.2 x A) + (1.4 x B) + (3.3 x C) + (0.6 x D) + E
Example
An organization has total assets of $7,000, working capital of $3,000, retained earnings of $750, EBIT of $3,000, market value of equity of $1,500, total liabilities of $2,000, and sales of $12,000.
A = $3,000 / $7,000 = 0.4286
B = $750 / $7,000 = 0.1071
C = $3,000 / $7,000 = 0.4286
D = $1,500 / $2,000 = 0.75
E = $12,000 / $7,000 = 1.7143
Altman Z-Score = (1.2 x 0.4286) + (1.4 x 0.1071) + (3.3 x 0.4286) + (0.6 x 0.75) +1.7143
Altman Z-Score = 0.51432 + 0.14994 + 1.41438 + 0.45 + 1.7143 = 4.243
Sources and more resources
- Wikipedia – Altman Z-Score – An explanation of the Altman Z-Score and how it is calculated.
- Accounting Tools – The Altman Z-Score Formula – A quick example of the formula for the Altman Z-Score.
- Investopedia – Altman Z-Score – Another explanation of the Altman Z-Score and how it is calculated.
- Old School Value – Altman Z Score Useless? Here’s Why I’m Still Using It – A discussion on how Altman Z-Score can be used.
- Business Insider – The Altman Z-Score: Is it possible to predict corporate bankruptcy using a formula? – Some history on the Altman Z-Score and how it was created.