Credit Risk & Insolvency Analytics Lab

Altman Z-Score Bankruptcy Lab

Calculate Altman Z-Score bankruptcy prediction, financial distress zones, working capital ratios, and default risk probability in an interactive finance lab.

Z-Score Engine Ratio Breakdown Table Z-Score Theory & Formulas FAQ

Company Archetypes

Load benchmark solvency profiles.

Step 1: Select Model Framework & Enter Balance Sheet Ratios

Financial Statement & Valuation Inputs

Selects calibrated ratio weights and cutoffs.
Denominator for asset efficiency ratios.
Short-term debt + long-term debt + payables.
Market value of shares (or net book equity for private firms).
Top-line annual sales revenue.
Altman Z-Score
4.38
Safe: > 2.99 | Distress: < 1.81
Distress Risk Classification
Safe Zone (Low Default Risk)
Solvent Financial Health
2-Year Insolvency Probability
< 5% Probability
Statistical default risk benchmark
Net Working Capital Buffer
$2,700,000
CA: $4.5M - CL: $1.8M

Multi-Factor Ratio Decomposition Table

Factor Financial Ratio & Dimension Raw Ratio Value Model Weight Weighted Score % of Total Z Economic Interpretation

Corporate Finance & Credit Analytics

Principles of Altman Z-Score Modeling

How the 5 dimensions predict enterprise solvency:

  • Liquidity Cushion (X1): Negative working capital indicates immediate cash strain that can precipitate technical insolvency.
  • Cumulative Earning Power (X2): Retained earnings reflect a firm's historical ability to generate sustained profits and self-fund expansion.
  • Core Operating Productivity (X3): EBIT / Total Assets isolates operational earning capability before financing structure and tax liabilities.
  • Solvency Cushion (X4): Equity market value shows how much enterprise value can deteriorate before liabilities exceed assets.
  • Asset Turnover (X5): Measures sales generation capacity per dollar of capital deployed.

Measure cash runway in the Cash Runway Lab.

Mathematical Formulations

Official Altman Z-score models

Public Mfg: Z = 1.2·X1 + 1.4·X2 + 3.3·X3 + 0.6·X4 + 0.999·X5

Private Mfg: Z' = 0.717·X1 + 0.847·X2 + 3.107·X3 + 0.420·X4 + 0.998·X5

Non-Mfg / Service: Z'' = 6.56·X1 + 3.26·X2 + 6.72·X3 + 1.05·X4

Working Capital = Current Assets - Current Liabilities

Evaluate downside portfolio exposure in the Value at Risk (VaR) Lab.

FAQ

Altman Z-Score & bankruptcy prediction questions

What is the Altman Z-Score?

The Altman Z-Score is a widely used financial metric developed by NYU Professor Edward Altman in 1968. It combines five key financial ratios into a single score that predicts the probability of a company entering bankruptcy within two years.

What do the Altman Z-Score zones mean?

For public manufacturing companies: (1) Safe Zone (Z > 2.99) indicates strong financial health and low bankruptcy risk; (2) Grey Zone (1.81 ≤ Z ≤ 2.99) indicates moderate financial risk and requires scrutiny; (3) Distress Zone (Z < 1.81) indicates a high probability of insolvency within two years.

What is the difference between Z, Z', and Z'' models?

Z is the original 1968 formula for public manufacturing firms using market value of equity. Z' is the 1983 adaptation for private manufacturing firms using book value of equity. Z'' is the four-factor model for non-manufacturing service firms and emerging markets, removing asset turnover to avoid industry bias.

Why is EBIT / Total Assets weighted so heavily in the Z-score?

Ratio X3 (EBIT / Total Assets) has the highest weighting coefficient (3.3 in the original model) because an enterprise's true economic survival depends fundamentally on its operational earning power before interest payments and tax deductions.

Can an Altman Z-score guarantee that a company will not fail?

No. While historically 72% to 90% accurate over a two-year horizon, the Z-Score is a backward-looking quantitative model based on historical accounting statements and does not account for sudden fraud, macroeconomic shocks, or technological disruption.

Can I export the complete Altman Z-Score breakdown to CSV?

Yes. You can export the component ratios, statistical weights, individual factor scores, and distress zone classifications as a UTF-8 CSV spreadsheet with formula defense.

Continue Exploring Risk & Resilience Tools

Explore our Risk & Resilience Hub, model DCF probability in the Monte Carlo Simulation Lab, analyze risk priority in the FMEA RPN Lab, calculate portfolio loss in the Value at Risk (VaR) Lab, or stress-test liquidity in the Cash Runway & Burn Rate Lab.