1. What is the Altman Z-Score?

The Altman Z-Score is a financial formula used to predict the probability of a company going bankrupt within two years. Developed by Edward Altman in 1968, it combines five financial ratios to assess corporate financial health.

2. How Does the Calculator Work?

The calculator uses the Altman Z-Score equation:

Where:

• \( A \) — Working Capital / Total Assets
• \( B \) — Retained Earnings / Total Assets
• \( C \) — EBIT / Total Assets
• \( D \) — Market Value Equity / Book Debt
• \( E \) — Sales / Total Assets

Explanation: Each ratio measures different aspects of financial health including liquidity, profitability, leverage, and efficiency.

3. Importance of Z-Score Calculation

Details: The Z-Score helps investors, creditors, and analysts assess bankruptcy risk, make investment decisions, and monitor corporate financial stability over time.

4. Using the Calculator

Tips: Enter all five financial ratios as decimal values. Ensure data is from the same reporting period for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What do the Z-Score ranges mean?
A: Z-Score > 2.99 = Safe Zone; 1.81-2.99 = Grey Zone; < 1.81 = Distress Zone.

Q2: Is the Z-Score applicable to all companies?
A: Originally designed for manufacturing firms, but modified versions exist for private companies and non-manufacturers.

Q3: How accurate is the Z-Score prediction?
A: The model correctly predicted bankruptcy in 72% of cases one year prior and 80-90% accuracy two years prior in original studies.

Q4: What are the limitations of the Z-Score?
A: Less accurate for new companies, service firms, and during economic crises. Does not account for qualitative factors.

Q5: Can Z-Score be used for non-US companies?
A: Yes, but accounting differences may affect accuracy. Local market conditions should be considered.