Screen a company for financial distress with Edward Altman's Z-score. Choose the original model for public manufacturers, Z' for private companies or Z'' for non-manufacturers, enter figures from the financial statements and see the score, its zone and which ratio is dragging it down.
Last updated:
Balance sheet
$
$
$
$
$
Negative if there is an accumulated deficit.
$
Share price × shares outstanding (public model).
Income statement (last 12 months)
$
$
Not used by the Z'' model.
Used in the emerging-market version so the scale matches a bond-rating equivalent.
Enter your values to see the result.
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How to use the Altman Z-Score Calculator
Pick the model that fits: public manufacturer, private company, or non-manufacturer/service firm.
Enter balance sheet figures: total assets and liabilities, current assets and liabilities, retained earnings and (public model) market value of equity.
Enter EBIT and sales for the last twelve months.
Press Calculate Z-score to see the score and zone.
Review the components to see which ratio pulls the score down, and compare models in the second table.
The three Altman Z-score models
Ratio
Z (public manufacturer)
Z' (private)
Z'' (non-manufacturer)
X1 Working capital ÷ Total assets
1.2
0.717
6.56
X2 Retained earnings ÷ Total assets
1.4
0.847
3.26
X3 EBIT ÷ Total assets
3.3
3.107
6.72
X4 Equity ÷ Total liabilities
0.6 (market value)
0.420 (book value)
1.05 (book value)
X5 Sales ÷ Total assets
1.0
0.998
not used
Safe zone
above 2.99
above 2.9
above 2.6
Grey zone
1.81 to 2.99
1.23 to 2.9
1.1 to 2.6
Distress zone
below 1.81
below 1.23
below 1.1
Ratios are entered as decimals (0.16, not 16%). Some textbooks print the original model as 0.012 X1 + 0.014 X2 + 0.033 X3 + 0.006 X4 + 0.999 X5 with X1 to X4 in percent; it gives the same result.
Worked example (default inputs)
Working capital = $1,900,000 − $1,100,000 = $800,000. With total assets of $5,000,000:
X1 = 0.16 × 1.2 = 0.192
X2 = $1,200,000 ÷ $5,000,000 = 0.24 × 1.4 = 0.336
X3 = $550,000 ÷ $5,000,000 = 0.11 × 3.3 = 0.363
X4 = $3,500,000 ÷ $2,800,000 = 1.25 × 0.6 = 0.750
X5 = $6,000,000 ÷ $5,000,000 = 1.2 × 1.0 = 1.200
Z = 0.192 + 0.336 + 0.363 + 0.750 + 1.200 = 2.84, just inside the grey zone. Profitability (X3) and the equity cushion (X4) are the levers that would lift it above 2.99.
Tips for using the Z-score
Track it over time: a score sliding from 3.5 to 2.2 over three years says more than one reading.
Use trailing twelve-month EBIT and sales with the latest balance sheet so the ratios line up.
Market value moves the public score: a falling share price lowers X4 even if nothing changed on the balance sheet.
Combine it with cash-flow checks such as interest coverage, debt maturities and free cash flow before drawing conclusions.
Frequently asked questions
What is the Altman Z-score formula?
The original 1968 model for public manufacturers is Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0 X5, where X1 = working capital ÷ total assets, X2 = retained earnings ÷ total assets, X3 = EBIT ÷ total assets, X4 = market value of equity ÷ total liabilities and X5 = sales ÷ total assets.
What do the Z-score zones mean?
For the original model, a score above 2.99 is the safe zone, 1.81 to 2.99 is the grey zone, and below 1.81 is the distress zone, where companies resemble those that went bankrupt in Altman's samples. Z' uses 2.9 and 1.23, and Z'' uses 2.6 and 1.1.
Which Z-score model should I use for a private company?
Use Z' (Z-prime), which replaces market value of equity with book equity: Z' = 0.717 X1 + 0.847 X2 + 3.107 X3 + 0.420 X4 + 0.998 X5. Book equity is total assets minus total liabilities.
What is the Z'' (Z double prime) model?
Z'' drops the sales-to-assets ratio, which varies widely between industries, so it suits service companies, non-manufacturers and emerging-market firms: Z'' = 6.56 X1 + 3.26 X2 + 6.72 X3 + 1.05 X4, with X4 = book equity ÷ total liabilities. An emerging-market version adds a constant of 3.25.
How accurate is the Altman Z-score?
In Altman's original study it correctly classified most companies one year before bankruptcy, and accuracy falls the further ahead you look. It is a screening tool based on historical samples, so a low score is a reason to investigate, not proof that a company will fail.
Can I use the Z-score for banks or insurance companies?
No. Financial companies have very different balance sheets, with high leverage and little working capital by design, so the Z-score is not meaningful for banks, insurers or similar firms.
Why can retained earnings be negative?
Retained earnings are the sum of all past profits minus dividends. A company with accumulated losses has negative retained earnings (an accumulated deficit), which lowers X2 and the Z-score. Young companies often score low on X2 for this reason.
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