Altman Z score

What is Altman Z- Score?

The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy.

Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Where:

• A = working capital / total assets

• B = retained earnings / total assets

• C = earnings before interest and tax / total assets

• D = market value of equity / total liabilities

• E = sales / total assets

A score below 1.8 means it's likely the company is headed for bankruptcy, while companies with scores above 3 are not likely to go bankrupt. Investors can use Altman Z-scores to determine whether they should buy or sell a stock if they're concerned about the company's underlying financial strength.