Altman Z-Score Calculator
Calculate the Altman Z-score of a company — the original Z for public manufacturers, Z′ for private firms and Z″ for non-manufacturers — and see whether it falls in the safe, grey or distress zone.
How it works
Z = 1.2·X1 + 1.4·X2 + 3.3·X3 + 0.6·X4 + 1.0·X5 (safe > 2.99, distress < 1.81) · Z′ = 0.717·X1 + 0.847·X2 + 3.107·X3 + 0.420·X4 + 0.998·X5 (safe > 2.9, distress < 1.23) · Z″ = 6.56·X1 + 3.26·X2 + 6.72·X3 + 1.05·X4 (safe > 2.6, distress < 1.1) · X1 = WC/TA, X2 = RE/TA, X3 = EBIT/TA, X4 = equity/TL, X5 = sales/TA
Edward Altman’s Z-score (1968) combines five balance-sheet and income ratios into one number that separates companies likely to go bankrupt within about two years from healthy ones. The original model was fitted on public US manufacturers and uses the market value of equity; Altman later re-estimated it as Z′ for private firms (book equity) and Z″ for non-manufacturers and emerging-market companies, dropping the asset-turnover ratio. Lenders and credit analysts use it as a quick screen alongside leverage and coverage ratios.
Worked example
A public manufacturer with total assets of 1,000,000, working capital of 150,000, retained earnings of 300,000, EBIT of 120,000, market value of equity of 800,000, total liabilities of 500,000 and sales of 1,200,000 has X1 = 0.15, X2 = 0.30, X3 = 0.12, X4 = 1.60 and X5 = 1.20. Z = 1.2 × 0.15 + 1.4 × 0.30 + 3.3 × 0.12 + 0.6 × 1.60 + 1.0 × 1.20 = 0.180 + 0.420 + 0.396 + 0.960 + 1.200 = 3.16, above 2.99 — the safe zone.
Sources: Altman (1968) — Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy, Journal of Finance · Wikipedia — Altman Z-score
Frequently asked questions
What is a good Altman Z-score?
For the original model, above 2.99 is the safe zone, 1.81–2.99 is the grey zone and below 1.81 signals distress. Z′ and Z″ have their own cut-offs (2.9/1.23 and 2.6/1.1).
Which model should I use?
Use the original Z for publicly traded manufacturers, Z′ for private companies (book equity instead of market value) and Z″ for service, retail and non-manufacturing firms or emerging-market companies.
How accurate is the Z-score?
Altman’s original sample classified about 95% of firms correctly one year before bankruptcy, with accuracy falling for longer horizons. It is a screening tool, not a forecast for a single company.
Does it work for banks or financial companies?
No. Banks, insurers and other financial firms have very different balance sheets; the Z-score was not designed for them.
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Educational estimate, not credit, accounting or investment advice. Lenders, auditors and rating agencies adjust these ratios with their own definitions — use the exact definitions in your loan agreement or reporting framework.