Altman Z-Score Calculator
Calculate the Altman Z-Score to assess a company's financial distress risk from five balance sheet and income statement ratios.
Example: A company with $2M working capital, $5M total assets, $3M retained earnings, $1.2M EBIT, $8M market value of equity, $4M total liabilities, and $10M sales produces a Z-Score of about 5.3 — safely within the "safe zone" (above 2.99), indicating low bankruptcy risk over the next two years.
Developed by Edward Altman (1968); Z = 1.2×(WC/TA) + 1.4×(RE/TA) + 3.3×(EBIT/TA) + 0.6×(MVE/TL) + 1.0×(Sales/TA).
How the Altman Z-Score is calculated
The Z-Score combines five financial ratios, each weighted by a coefficient derived from Edward Altman's original 1968 statistical analysis of companies that did and didn't go bankrupt: Z = 1.2×X1 + 1.4×X2 + 3.3×X3 + 0.6×X4 + 1.0×X5. The heaviest weighting goes to X3 (EBIT / total assets), reflecting how strongly operating profitability predicted solvency in the original research.
The Z-Score is a distress-prediction model, distinct from the Piotroski F-Score, which instead screens for fundamentally strong, improving companies rather than bankruptcy risk. For a closer look at the liquidity and leverage ratios feeding into components like X1 and X4, see the Liquidity Ratios calculator and the Solvency Ratios calculator.
Frequently asked questions
- What is the Altman Z-Score?
- A bankruptcy-prediction model combining five weighted financial ratios into a single score. Originally built for manufacturers, it's widely used as a general distress screen.
- What do the three zones mean?
- Below 1.81 is the distress zone (elevated bankruptcy risk within roughly two years in the original research), 1.81–2.99 is the grey zone (ambiguous), and above 2.99 is the safe zone.
- Can I use this for any company?
- The original model was calibrated on public manufacturers — financial firms and early-stage companies with unusual balance sheets (e.g. negative equity, no meaningful market cap) will produce less reliable scores.
- What Z-Score indicates financial distress?
- A Z-Score below 1.81 falls into the distress zone, historically associated with elevated bankruptcy risk within roughly two years in Altman's original research. Scores between 1.81 and 2.99 sit in an ambiguous "grey zone," and scores above 2.99 fall into the safe zone.
- What are the five components of the Z-Score?
- X1 (working capital / total assets) measures liquidity, X2 (retained earnings / total assets) measures cumulative profitability and age, X3 (EBIT / total assets) measures operating efficiency, X4 (market cap / total liabilities) measures market-based leverage, and X5 (revenue / total assets) measures asset turnover — each weighted differently and summed into the final score.
- What are the limitations of the Altman Z-Score?
- It was calibrated on public manufacturing companies in the late 1960s, so it is less reliable for financial firms, service and technology companies with different balance sheet structures, and private companies without a market capitalization. It is also a statistical model, not a guarantee — it flags elevated risk, not certainty of failure.
- Is the Z-Score applicable to all companies?
- No — it works best for public, asset-heavy, non-financial companies similar to the original manufacturing sample it was built from. Altman and other researchers later developed adapted versions (such as the Z"-Score) for private companies and non-manufacturers, which this calculator does not implement.