Rather than relying on a single ratio, the Altman Z-Score combines five separate financial ratios into one composite bankruptcy-risk score.
How it works
Working capital, retained earnings, EBIT, and sales are each divided by total assets, and market value of equity is divided by total liabilities — the five resulting ratios are combined with fixed weights (1.2, 1.4, 3.3, 0.6, and 1.0 respectively) into the final Z-score.
What this does not include
This is the original 1968 model, developed specifically for publicly traded manufacturing companies — later revised versions exist for private companies and non-manufacturers, which use different weights and ratios than shown here.
How to use this calculator
- Enter working capital, total assets, retained earnings, EBIT, market value of equity, total liabilities, and sales.
A worked example
Working capital $200,000, total assets $1,000,000, retained earnings $300,000, EBIT $150,000, market value of equity $800,000, total liabilities $400,000, sales $1,200,000: Altman Z-score = 3.555 — in the “safe zone,” indicating low bankruptcy risk.
What the variables mean
| Variable | Meaning |
|---|---|
| Working capital, total assets | Measures short-term liquidity relative to overall size |
| Retained earnings | Cumulative profitability over the company’s life |
| EBIT, sales | Operating profitability and revenue efficiency |
| Market value of equity, total liabilities | Leverage, measured against market value rather than book value |
Edge cases worth knowing
The Z-score combines five weighted financial ratios into one bankruptcy-risk indicator — a score above roughly 2.99 is generally considered “safe,” below 1.81 “distress,” with a “grey zone” in between.
Zero total assets makes every ratio in the formula undefined, so the calculator declines to show a result for that case.
Frequently asked questions
What do the three Z-score zones mean?
Above 2.99 is considered the “safe” zone, 1.81 to 2.99 is a “grey” zone of some risk, and below 1.81 is the “distress” zone historically associated with a high likelihood of bankruptcy within two years.
Is the Z-score a guarantee of financial health?
No — it’s a statistical model based on historical bankruptcy patterns, not a certainty; it’s best used as one signal among several in credit or investment analysis.
Does this apply to private companies?
The original model requires a market value of equity, which private companies don’t have — a modified Z’-score model substitutes book value of equity for private company analysis instead.
