β οΈ Altman Z-Score Calculator
Five ratios, one bankruptcy-risk number.
Altman bankruptcy-risk score
Estimates for planning only, not financial advice.
The Altman Z-score distills bankruptcy risk into one number from five ratios: liquidity, cumulative profitability, operating efficiency, market confidence, and asset turnover. Score above 2.99 and the firm sits in the safe zone; between 1.81 and 2.99 is the grey zone; below 1.81 is distress. Our example company, with $180,000 of working capital, $240,000 retained earnings, $150,000 EBIT, $900,000 market equity against $500,000 liabilities, $1.5M sales on $1.2M assets, scores 3.20: safely out of the danger zone.
How to Use This Calculator
Choose the model variant (public firms use market value of equity; private firms use book equity), then enter the balance sheet and income statement figures for the same period. The calculator shows the Z-score, each of the five ratios, and the zone classification.
Pick the variant: original Z for listed manufacturers, Z' for private firms where market value is unavailable.
Enter working capital, retained earnings, EBIT, equity value, total liabilities, sales, and total assets. Use trailing-twelve-month figures for trend work.
Read the zone, then look at which ratios drag the score: the weakest link tells you what kind of trouble (liquidity, debt load, profitability) to investigate. Pair with our accrual ratio calculator to check earnings quality alongside distress risk.
The Formula
The weights are doing the interpretation: EBIT over assets gets the heaviest weight (3.3) because operating efficiency predicts survival best, while sales over assets gets 1.0. Retained earnings over assets captures the firm's whole history, rewarding old survivors and punishing young burners. The market-value term is the only forward-looking input, which is why scores can collapse on sentiment before accounting catches up.
Worked Example: Z = 3.20 (Safe)
Working capital $180,000 / assets $1,200,000: A = 0.150, contributing 1.2 x 0.150 = 0.180. Retained earnings $240,000 / $1,200,000: B = 0.200, contributing 1.4 x 0.200 = 0.280. EBIT $150,000 / $1,200,000: C = 0.125, contributing 3.3 x 0.125 = 0.4125. Equity $900,000 / liabilities $500,000: D = 1.80, contributing 0.6 x 1.80 = 1.08. Sales $1,500,000 / $1,200,000: E = 1.25, contributing 1.0 x 1.25 = 1.25. Total: 0.180 + 0.280 + 0.4125 + 1.08 + 1.25 = 3.20, above 2.99, safe zone.
Stress it: halve the market equity to $450,000 (D = 0.90, contribution 0.54) and cut EBIT to $60,000 (C = 0.05, contribution 0.165): the score falls to 2.42, grey zone. Same assets, same sales, but the market's verdict and thinner operations moved the needle more than a full point. That sensitivity is the point: the score aggregates exactly the things that kill companies.
The Zones
| Z-score | Zone | Meaning |
|---|---|---|
| Above 2.99 | Safe | Low bankruptcy risk |
| 1.81 to 2.99 | Grey | Weakness present; monitor closely |
| Below 1.81 | Distress | High bankruptcy risk |
For the private-firm Z' variant, the zones shift slightly (safe above 2.90, distress below 1.23), which the calculator applies automatically. Treat zone boundaries as fuzzy: a 2.95 is not meaningfully safer than a 3.05, and the trend across quarters tells you more than any single reading.
What the Score Misses
The Z-score is a 1968 manufacturing model, and it shows. It handles fraud badly (cooked inputs produce clean scores), ignores liquidity timing (a solvent-on-paper firm can die waiting for receivables), and says nothing about sovereign, currency, or industry-wide shocks. Service and tech firms with light assets can score oddly because the sales-to-assets ratio behaves differently without factories. It also cannot see off-balance-sheet debt that accounting keeps hidden.
Use it as the first filter in a credit or equity screen: compute it for every candidate, investigate everything in the grey zone or worse, and never let a safe score substitute for reading the cash flow statement. Combine it with the accrual ratio for earnings quality and our ROI calculator for capital efficiency, and you have a compact three-number health check that catches most of what kills companies.
Z-Scores for Private Firms and Trends
Altman's original model needs market capitalization, which private firms do not have. The Z-prime variant substitutes book equity for market value and adjusts the coefficients; the Z-double-prime drops the sales-to-assets ratio for non-manufacturers. If you are scoring a private company, use the variant built for it: the original will misread asset-light businesses badly.
More important than any single score is the trend. A company sliding from 3.2 to 2.4 to 1.9 over three years is telling you something no snapshot can: the direction of travel. Pair the trend with the ratio decomposition to find the driver. If retained earnings over assets is the falling piece, the problem is accumulated losses; if working capital over assets is falling, it is liquidity. The score is the smoke alarm; the ratios are the search for the fire.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is the Altman Z-score?
A bankruptcy-prediction score combining five financial ratios into one number: Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E. Above 2.99 is the safe zone, 1.81 to 2.99 is the grey zone, and below 1.81 signals distress. Edward Altman built it in 1968 on manufacturing firms, and it still screens usefully today.
What is the Altman Z-score formula?
Z = 1.2 x (working capital / total assets) + 1.4 x (retained earnings / total assets) + 3.3 x (EBIT / total assets) + 0.6 x (market value of equity / total liabilities) + 1.0 x (sales / total assets). Each ratio captures something different: liquidity, cumulative profitability, operating efficiency, market confidence, and asset turnover.
What do the Z-score zones mean?
Above 2.99 (safe): bankruptcy risk is low. Between 1.81 and 2.99 (grey): the company shows weakness and deserves monitoring. Below 1.81 (distress): financial stress is significant and bankruptcy risk is high. The zones are probabilities, not prophecies: plenty of grey-zone firms recover, and some safe-zone firms still fail from fraud or shocks.
Does the Z-score work for non-manufacturers?
The original model was built for publicly traded manufacturers. Altman later published variants: Z' for private firms (replaces market value of equity with book value) and Z" for non-manufacturers (drops the sales-to-assets ratio, which varies wildly by industry). This calculator includes the private-firm variant; use Z" mentally for service firms by focusing less on the sales ratio.
How accurate is the Altman Z-score?
In its original tests it classified bankrupt vs non-bankrupt firms correctly about 80 to 90 percent of the time one year out, with accuracy fading over longer horizons. It is a screening tool, not a verdict: it misses fraud, sudden liquidity crises, and sovereign or macro shocks. Use it to flag companies for deeper work, not to make the final call.
Why does market value of equity matter in the formula?
Because the market is a forward-looking assessor of solvency. When investors lose faith, market cap falls, the D ratio collapses, and the Z-score drops before the accounting numbers fully reflect the trouble. It is the one market-based input among four accounting ratios, and it often moves first.
Can a profitable company have a bad Z-score?
Yes. A profitable firm can score poorly if it is drowning in liabilities relative to its market value, has negative working capital, or carries years of accumulated losses in retained earnings. Profitability is only one of five inputs, and the C ratio (EBIT/assets) is just one term. Solvency and profitability are different questions.
How often should I check a company's Z-score?
Quarterly for holdings you own, using trailing-twelve-month figures, and before any new investment. The trend matters more than the level: a score sliding from 3.5 to 2.2 over six quarters is a louder warning than a stable 2.0. Set a rule to review any holding that enters the grey zone.
Z-score vs credit ratings: which is better?
They answer at different speeds. Ratings agencies are thorough and slow; the Z-score is crude and fast. Academic work has long shown market-based and accounting-based distress measures often move before rating downgrades. Use the Z-score as an early-warning tripwire and ratings as the deep dossier, not as substitutes.
Where do I find the inputs?
Working capital, retained earnings, total assets, and total liabilities come from the balance sheet; EBIT and sales from the income statement; market value of equity is share price times shares outstanding. For private firms, use book equity in place of market value. All figures should be for the same period.