Altman Z-Score Calculator (bankruptcy risk: Z, Z′ private & Z″ non-manufacturing)

Understanding the Altman Z-score calculator — concept and principle

This calculator computes Altman's Z-score, a classic measure of a company's risk of financial distress, in three versions: the original Z for listed manufacturers, Z′ for private firms and Z″ for non-manufacturers. It shows the five (or four) ratios and which zone the score falls in. Use it for credit analysis, investment screening and corporate finance courses.

Each ratio is weighted and the pieces stack to 3.28, above the 2.675 safe-zone cut-off.

How it is calculated

Ratios (as decimals): X1 = working capital ÷ total assets; X2 = retained earnings ÷ total assets; X3 = EBIT ÷ total assets; X4 = equity ÷ total liabilities; X5 = sales ÷ total assets.

Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0 X5 (market value of equity). Below 1.81 distress; 1.81–2.675 grey zone; above, safe side of the cut-off.
Z′ (private, book equity) = 0.717 X1 + 0.847 X2 + 3.107 X3 + 0.420 X4 + 0.998 X5; grey zone 1.23–2.90.
Z″ (non-manufacturers) = 6.56 X1 + 3.26 X2 + 6.72 X3 + 1.05 X4; no cut-offs given here.

The principle

Edward Altman used discriminant analysis on manufacturers that went bankrupt and those that did not, and found the weighted combination of ratios that best separated the two groups. Each ratio captures one aspect of health: liquidity (X1), accumulated profitability and age (X2), operating profitability (X3), how far the market value could fall before liabilities exceed assets (X4), and how efficiently assets generate sales (X5). EBIT carries the largest weight because earning power is central to survival.

Worked example

Default inputs: total assets 1,000; working capital 150; retained earnings 300; EBIT 120; market equity 900; liabilities 500; sales 1,200; model Z.

X1 = 0.15, X2 = 0.30, X3 = 0.12, X4 = 900 ÷ 500 = 1.8, X5 = 1.2.
1.2 × 0.15 = 0.18; 1.4 × 0.30 = 0.42; 3.3 × 0.12 = 0.396.
0.6 × 1.8 = 1.08; 1.0 × 1.2 = 1.2.
Z = 0.18 + 0.42 + 0.396 + 1.08 + 1.2 = 3.276 ≈ 3.28.
3.28 is above 2.675: safe side of the cut-off.

Each point is the calculator re-run with only “Total assets” changed; the gold point is the default example. Change the inputs above and this chart follows your numbers.

Total assets	Z-score
250	9.86
500	5.47
750	4.01
1,000	3.28
1,250	2.84
1,500	2.54
2,000	2.18

How to read the result

Where does your result fall?

A higher Z means a profile more like the firms that survived. Scores in the grey zone call for closer analysis, and scores below the lower cut-off resemble firms that later failed. Use the right model: the original Z was fitted on listed manufacturers, Z′ uses book equity for private firms, and Z″ removes the sales ratio, which varies widely across industries.

Common mistakes

Using the original Z for banks, insurers or service firms.
Using book equity in the original Z, or market equity in Z′.
Entering ratios as percentages instead of decimals.
Treating the score as a precise probability of bankruptcy.

Keep in mind: The Z-score is a screening tool based on historical samples. It does not predict the future with certainty and should be combined with full financial analysis. This is not investment or credit advice.

Frequently asked questions

What is a good Altman Z-score?

For the original model, above about 2.675 is on the safe side of Altman's cut-off; below 1.81 resembles distressed firms.

Can I use the Z-score for a tech company?

Use Z″, which leaves out sales, and compare firms in the same sector.

How often should it be recalculated?

Each time new financial statements are published, since all inputs change.

Sources: E. I. Altman, "Predicting Financial Distress of Companies: Revisiting the Z-Score and ZETA® Models" (NYU Stern, July 2000)

Checked 9 Nov 2026. E. I. Altman, “Predicting Financial Distress of Companies: Revisiting the Z-Score and ZETA® Models” (NYU Stern, July 2000): original Z-score and its decimal form, zone of ignorance from 1.81 and the 2.675 cut-off, Z′ model (Table 6, grey area 1.23–2.90) and Z″ model coefficients.

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