Definition
The Altman Z-score (Z-Score) is a formula for determining the probability that a private company is heading for financial failure. The formula is made up of liquidity, solvency, profitability, leverage, and activity ratios. Each ratio is given a weighting, culminating in the calculation of the Z-Score.
The formula is calculated as follows:
|
Financial Ratio |
Numerator |
Denominator |
Multiple |
Result |
|
Liquidity |
Working Capital |
Total Assets |
0.717 |
A |
|
Solvency |
Retained Earnings |
Total Assets |
0.847 |
B |
|
Profitability |
Annualised Profit before Interest and Tax |
Total Assets |
3.107 |
C |
|
Leverage |
Book Value of Equity |
Total Liabilities |
0.420 |
D |
|
Activity |
Annualised Sales |
Total Assets |
0.998 |
E |
|
Altman Z-Score |
Sum of A + B + C + D + E |
|
|
Z-Score |
Interpreting the Altman Z-Score
The Z-Score returns a number that can be used to interpret a set of financial accounts as follows:
|
Z-Score Result |
Probability of Failure |
|
> 2.90 |
Low |
|
1.23 – 2.90 |
Moderate |
|
< 1.23 |
High |
Locating the Altman Z-Score
To find the Z-Score, navigate to Financial Reports > Financial Snapshot, and scroll to the bottom of the page
In the exported Excel file the Z-Score is available at the bottom of the report.