Altman Z-Score Calculator
Bankruptcy-risk screen from five balance-sheet ratios — the original 1968 model plus the private-firm and service variants, with distress, grey and safe zones.
Altman Z-Score Calculator: with the default inputs, z-score is 3.12.
Pick the version fitted to the kind of company you're looking at. The cut-offs differ too.
Cumulative profit kept in the business. Negative for a company that has never made money — which is exactly what the model is looking for.
Share price × shares outstanding. Used only by the original public-company model.
Total assets minus total liabilities. Used by the Z′ and Z″ variants.
- Zone
- Safe zone
- Reading
- Z = 3.12, above 2.99. On this screen the company looks financially sound — the model would not have flagged it in the year before a bankruptcy.
- Model
- Original Z-score (public manufacturer) — X4 uses market capitalization.
- X1 — working capital ÷ total assets
- 0.2
- X2 — retained earnings ÷ total assets
- 0.25
- X3 — EBIT ÷ total assets
- 0.12
- X4 — equity ÷ total liabilities
- 1.5556
- X5 — sales ÷ total assets
- 1.2
- Working capital
- $200,000.00
- Safe zone starts above
- 2.99
- Distress zone starts below
- 1.81
- Points from the safe zone
- -0.13Negative means already inside it.
Assumptions
- Coefficients and zone cut-offs are Altman's published values; nothing here is re-fitted to modern data.
- The original Z was estimated on 66 US manufacturers with data from 1946–1965.
- Figures are taken as reported — no adjustment for operating leases, goodwill, off-balance-sheet obligations or one-off items.
- The zone chart moves equity and liabilities and holds the other four ratios where they are, so it shows the cushion X4 has to supply — not what would happen if the business itself changed.
- A screen for further work, not a prediction of bankruptcy for any individual company.
| Ratio | Value | Weight | Contribution to Z |
|---|---|---|---|
| X1 Working capital / assets | 0.2 | 1.2 | 0.24 |
| X2 Retained earnings / assets | 0.25 | 1.4 | 0.35 |
| X3 EBIT / assets | 0.12 | 3.3 | 0.396 |
| X4 Market cap / liabilities | 1.5556 | 0.6 | 0.9333 |
| X5 Sales / assets | 1.2 | 1 | 1.2 |
The contributions add to the Z-score. Whichever line is smallest is the one to go and understand.
| Zone | Z-score | What Altman found |
|---|---|---|
| Safe | above 2.99 | No failures in this range in the original sample. |
| Grey | 1.81 – 2.99 | Both survivors and failures. Ambiguous by construction. |
| Distress | below 1.81 | Where nearly all the bankrupt firms sat a year before filing. |
How this is worked out
The formula
Original Z (public manufacturer, Altman 1968): Z = 1.2·X1 + 1.4·X2 + 3.3·X3 + 0.6·X4 + 1.0·X5 Safe > 2.99 Grey 1.81–2.99 Distress < 1.81 Z′ (private firm): Z′ = 0.717·X1 + 0.847·X2 + 3.107·X3 + 0.420·X4 + 0.998·X5 Safe > 2.9 Grey 1.23–2.9 Distress < 1.23 Z″ (non-manufacturer / emerging market): Z″ = 6.56·X1 + 3.26·X2 + 6.72·X3 + 1.05·X4 Safe > 2.6 Grey 1.1–2.6 Distress < 1.1 X1 = working capital ÷ total assets X2 = retained earnings ÷ total assets X3 = EBIT ÷ total assets X4 = market capitalization (Z) or book equity (Z′, Z″) ÷ total liabilities X5 = sales ÷ total assets
Open How it’s calculated above to see this worked through with your own numbers.
What you enter
- Model
- Pick the version fitted to the kind of company you're looking at. The cut-offs differ too.Original Z — public manufacturer (1968) · Z′ — private firm · Z″ — non-manufacturer / service
- Total assets
- A number.in dollars · 0 or more · defaults to 1000000
- Current assets
- A number.in dollars · 0 or more · defaults to 500000
- Current liabilities
- A number.in dollars · 0 or more · defaults to 300000
- Retained earnings
- Cumulative profit kept in the business. Negative for a company that has never made money — which is exactly what the model is looking for.in dollars · defaults to 250000
- EBIT (operating income)
- A number.in dollars · defaults to 120000
- Revenue (sales)
- A number.in dollars · 0 or more · defaults to 1200000
- Total liabilities
- A number.in dollars · 0 or more · defaults to 450000
- Market capitalization
- Share price × shares outstanding. Used only by the original public-company model.in dollars · 0 or more · defaults to 700000
- Book value of equity
- Total assets minus total liabilities. Used by the Z′ and Z″ variants.in dollars · defaults to 550000
What you get back
- Z-scoremain answer
- Zone
- Reading
- Model
- X1 — working capital ÷ total assets
- X2 — retained earnings ÷ total assets
- X3 — EBIT ÷ total assets
- X4 — equity ÷ total liabilities
- X5 — sales ÷ total assets
- Working capital
- Safe zone starts above
- Distress zone starts below
- Points from the safe zone
- Negative means already inside it.
What this assumes
- Coefficients and zone cut-offs are Altman's published values; nothing here is re-fitted to modern data.
- The original Z was estimated on 66 US manufacturers with data from 1946–1965.
- Figures are taken as reported — no adjustment for operating leases, goodwill, off-balance-sheet obligations or one-off items.
- The zone chart moves equity and liabilities and holds the other four ratios where they are, so it shows the cushion X4 has to supply — not what would happen if the business itself changed.
- A screen for further work, not a prediction of bankruptcy for any individual company.
About this calculator
In 1968 Edward Altman took 33 manufacturers that had gone bankrupt and 33 that hadn't, ran a multiple discriminant analysis over 22 candidate ratios, and published the five that separated them best. The weighted sum of those five is the Z-score, and sixty years later it is still the first thing a credit analyst computes about an unfamiliar company — because it takes four numbers off a balance sheet and one off an income statement, and it works better than it has any right to.
What the five ratios are actually measuring
- X1, working capital ÷ assets — short-term liquidity. A firm burning through its current assets shows up here first.
- X2, retained earnings ÷ assets — cumulative profitability, and implicitly age. A young company that has never had time to accumulate earnings scores low for a reason that has nothing to do with distress.
- X3, EBIT ÷ assets — operating earning power, before the capital structure gets a say. It carries the largest weight in every variant, which is the model's real message: businesses fail because operations stop generating returns.
- X4, equity ÷ liabilities — how far asset values can fall before liabilities exceed them.
- X5, sales ÷ assets — asset turnover. This is the one that breaks on non-manufacturers, which is why Z″ drops it.
Which model to use
The original Z needs a market capitalization, so it only works for listed companies, and it was fitted on manufacturers. Use Z′ for a private company (book equity replaces market cap, and every coefficient was re-estimated — you cannot just swap the input into the original formula). Use Z″ for retailers, service firms and anything asset-light, where a low asset turnover means the business model is efficient rather than that the company is failing.
How to read the answer
Above the safe threshold, no company in Altman's original sample failed. Below the distress threshold is where almost all of the bankrupt firms sat a year before filing. In between is the grey zone, which contains both — it is not a mild version of distress, it is genuinely uninformative, and the honest response is to go and read the cash-flow statement.
Where it misleads — and it does
This is a screen, not a verdict. It was fitted on 1960s US manufacturers with sixty-six data points, and the coefficients have never been re-estimated on a modern sample by Altman himself. It systematically punishes young, R&D-heavy and asset-light companies: a profitable SaaS business with negative retained earnings from years of growth spending can sit in the distress zone indefinitely. It says nothing about refinancing risk, covenant headroom, debt maturity dates or the willingness of a parent or sponsor to write a cheque — all of which decide whether a stretched company actually files. And because bankruptcy is rare, most companies flagged as distressed do not go bankrupt: the model's false-positive rate is the price of catching the true ones. Treat a low Z-score as a question, and go looking for the answer in liquidity, maturities and covenants.
Frequently asked questions
▸What is a good Altman Z-score?
On the original model, above 2.99 is the safe zone and below 1.81 is the distress zone. The private-firm Z′ uses 2.9 and 1.23; the non-manufacturer Z″ uses 2.6 and 1.1. Never apply one model's cut-offs to another's formula.
▸Can I use the Z-score on a private company?
Yes, but use the Z′ variant. The original model's X4 needs a market capitalization; Z′ substitutes book equity and re-estimates every coefficient, so swapping the input into the 1968 formula gives a meaningless number.
▸Does the Z-score work for banks and tech companies?
Not well. Banks have balance sheets the model was never fitted to — working capital and asset turnover mean something different for a lender. Asset-light software firms score badly through X2 and X5 even when they're thriving; Z″ helps but doesn't fix it.
▸How accurate is it?
In Altman's original sample it classified about 95% of firms correctly one year before bankruptcy, falling to roughly 72% two years out. Out of sample and decades later, accuracy is lower, and because bankruptcy is rare most distress-zone companies never file.
▸Why does a profitable company score in the distress zone?
Usually negative retained earnings (X2) from years of accumulated losses or a large distribution, or high leverage crushing X4. The model reads cumulative history, not this quarter's profit — which is a feature for old manufacturers and a bug for young growth companies.
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The questions people ask next to a altman z-score.
Working capital, current ratio, quick ratio and cash ratio, plus the cash conversion cycle from DSO, DIO and DPO — and what each day of it costs you.
Weighted average cost of capital from equity and debt weights, with cost of equity via CAPM, after-tax cost of debt and the dollar value of the interest tax shield.
EBITDA built up from net income or down from revenue, with margin, adjusted EBITDA and an honest cash-conversion check — because EBITDA is not cash flow.
Months of runway, the zero-cash date and the burn multiple from cash, spend, revenue and growth — with the month it turns cash-flow positive, if it does.
Return on investment and annualized ROI from what you put in, what you got back and how long it took, with the work shown and ROI vs CAGR vs IRR explained.