Altman Z-Score Calculator

The Altman Z-Score converts balance sheet and income statement numbers into a single number that estimates how close a company is to bankruptcy. Edward Altman developed this model in 1968 using multiple discriminant analysis, combining five financial ratios into one score which can then be used to classify companies as safe, critical or failure prone.

This calculator supports the three published versions of the model. Select the version that fits your company, enter the relevant data to get the score, risk band and a detailed breakdown of how each metric affects the result.

What does the Altman Z-score measure?

Each metric reflects the financial health from a different perspective. The score takes into account liquidity, cumulative profitability, operating efficiency, debt-paying ability (measured at market or book value), and asset turnover. A weakness in one area can be offset by strength in another.

This score is not a prediction for an individual event but rather an indicator of relative risk. When interpreting it, it's best to consider multiple years and compare the company with similar companies in the same industry.

The five key figures.

Each model is made up of the same basic elements marked with X1 to X5.

Working capital is short-term assets minus current liabilities; if the short-term debts exceed the short-term assets, then net working capital can be negative. For X4, the public market model uses equity market value while private and non-manufacturing models use book value from the balance sheet.

Three formulas:

Original Z-score, suitable for listed manufacturing companies:

Z'-Score, suitable for private companies:

Z''-Score, suitable for companies outside of manufacturing and developing countries:

The "Z''" model omits the consideration of the turnover-to-asset ratio, as the frequency of asset turnover varies greatly in the service industry and retail trade. Including this ratio would distort the comparison results.

Interpretation of individual areas

Each model has its own thresholds. The following table shows the ranges for safe, gray and critical zones corresponding to each version.

The definition of the "gray" area is intentionally conservative. Values in this range do not indicate either a completely healthy financial situation or an unequivocal warning signal. Therefore, cash flow, upcoming maturities and changes to recent performance should continue to be monitored.

A full example:

Let's say there is a publicly traded manufacturing company with total assets of $1,000. The current assets are $300, retained earnings are $400, EBIT is $200, equity market value is $750, total debt is $500 and sales are $1,200. The respective ratios would be 0.30, 0.40, 0.20, 1.50 and 1.20.

This company's rating is 3.68 which is above the threshold of 2.99 making it a safe bet.

What the Z-score can and cannot do.

Lenders, auditors, suppliers and investors use this value for early risk assessment and quick comparability of credit risks between different companies. The calculation is cost-effective; after choosing the right version it can also be used across industries.

But it has limitations too. The model is based on potentially smoothed or restated accounting data and was calibrated decades ago using manufacturing companies. It's not suitable for banks or insurers because their balance sheet structures work differently. It should be considered as one of many factors to take into account, not the final word.

This calculator is for general educational and analytical purposes only, not financial advice. No results are guaranteed. Always combine the value with a comprehensive review of financial statements as well as professional expertise.