What is Altman's Z Score Model?
The Altman Z-Score model, developed by Edward Altman in the late 1960s, is a financial metric used to predict the likelihood of bankruptcy for publicly traded manufacturing companies. The model employs multiple financial ratios to assess a company's financial health and solvency, providing investors, creditors, and analysts with a quantitative tool for evaluating credit risk.
The Altman Z-Score model incorporates five financial ratios, weighted based on statistical analysis of bankrupt and non-bankrupt companies, to calculate a composite score. Companies with Z-Scores above a certain threshold (typically 2.6) are considered financially healthy and have a lower likelihood of bankruptcy, while those with Z-Scores below the threshold are considered financially distressed and may face higher bankruptcy risk.
The Altman Z-Score model is widely used by investors, lenders, and analysts to assess credit risk, make investment decisions, and monitor the financial health of companies.
How to Calculate Altman's Z Score Model?
Altman's Z Score Model calculator uses Zeta Value = 1.2*Working Capital+1.4*Retained Earnings+3.3*Earnings Before Interest and Taxes+0.6*Market Value of Equity+1.0*Total Sales to calculate the Zeta Value, Altman's Z Score Model is a quantitative financial tool used to assess the probability of bankruptcy for publicly traded manufacturing companies. Zeta Value is denoted by ζ symbol.
How to calculate Altman's Z Score Model using this online calculator? To use this online calculator for Altman's Z Score Model, enter Working Capital (A), Retained Earnings (RE), Earnings Before Interest and Taxes (C), Market Value of Equity (D.) & Total Sales (E) and hit the calculate button. Here is how the Altman's Z Score Model calculation can be explained with given input values -> 264300 = 1.2*60000+1.4*3500+3.3*40000+0.6*9000+1.0*50000.