Altman Z-Score Calculator
The Altman Z-Score Calculator gauges a company's bankruptcy risk by combining five financial ratios into a single score. Z = 1.2(WC/TA) + 1.4(RE/TA) + 3.3(EBIT/TA) + 0.6(Equity/TA) + 1.0(Sales/TA). Above 2.99 is the safe zone; below 1.81 signals distress.
Formula
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + X5
- Each term is a financial ratio: X1 = working capital/total assets, X2 = retained earnings/total assets, X3 = EBIT/total assets, X4 = market value of equity/total assets, X5 = sales/total assets.
- The ratios are weighted (1.2, 1.4, 3.3, 0.6, 1.0) and summed into a single Z-score.
- Interpretation: Z > 2.99 is the safe zone, 1.81–2.99 is the grey zone, and Z < 1.81 indicates a high risk of distress.
- This original model is designed for public manufacturing firms; variants exist for private and non-manufacturing companies.
Example Calculation
Inputs
- Working Capital: 100000
- Retained Earnings: 200000
- EBIT: 150000
- Market Value Equity: 500000
- Total Sales: 1000000
- Total Assets: 800000
With total assets of $800,000, the ratios give Z = 1.2(0.125) + 1.4(0.25) + 3.3(0.1875) + 0.6(0.625) + 1.0(1.25) ≈ 3.34, placing the firm in the safe zone.
Frequently asked questions
What is the Altman Z-Score?
It is a formula that combines five financial ratios to estimate how likely a company is to go bankrupt within two years.
How do I read the score?
Above 2.99 is the safe zone, 1.81 to 2.99 is the grey zone, and below 1.81 signals a high risk of financial distress.
What inputs do I need?
Working capital, retained earnings, EBIT, market value of equity, total sales and total assets from the company's financial statements.
Does it work for all companies?
The classic model targets public manufacturers; Altman published separate versions for private firms and non-manufacturers.
Is the Z-Score a guarantee?
No. It is a statistical indicator, not a certainty — use it alongside other analysis.