What the Z-Score measures and where to find it
The Altman Z-Score is a formula for estimating the probability that a private company is heading for financial failure. It combines liquidity, solvency, profitability, leverage, and activity ratios, each given a weighting, into a single score.
Where to find it
Under Detailed Reports, select Financial Reports, then the Financial Snapshot tab, and scroll to the bottom of the page. It appears under the Insolvency Score heading, listed as Altman's Z-Score (private engagements).
The Z-Score also appears at the bottom of the report when you download the Financial Snapshot to Excel.
How it is calculated
Five ratios are calculated, and each is multiplied by its weighting. The results are added together to give the score.
| Ratio | Numerator | Denominator | Multiple |
|---|---|---|---|
| Liquidity | Working Capital | Total Assets | 0.717 |
| Solvency | Retained Earnings | Total Assets | 0.847 |
| Profitability | Annualised PBIT | Total Assets | 3.107 |
| Leverage | Book Value of Equity | Total Liabilities | 0.420 |
| Activity | Annualised Sales | Total Assets | 0.998 |
Reading the score
The Z-Score is an indicator rather than a verdict. It is based on the figures in the uploaded data for the period shown, so it is worth reading alongside the rest of the reports rather than on its own.
| Z-Score | What it indicates |
|---|---|
| Above 2.90 | Low probability of failure. |
| 1.23 to 2.90 | Moderate probability of failure. |
| Below 1.23 | High probability of failure. |
See also: