1. THE ALTMAN Z''SCORE FOR NONMANUFACTURERS
The Revised Model (A Variation Adapted for Non Manufacturers)
All ZScore models use the multiple discriminant analysis (MDA) as the preferred statistical technique.
To arrive at the Altman Z" Score Model for NonManufacturers, further revisions were made to the Altman Z Score model for Private Firms (i.e.: Z'Score) . The industry sensitive Asset Turnover Ratio (Sales/Total Assetswhich is Ratio B in the model) was completely removed from the model and the coefficients for the weighted ratios A, C, D and E was changed. This made it a fourvariable module.
Altman Z" Score model for NonManufacturers (i.e.: Z"Score) is as follows:
Z" Score = 6.72 A + 1.05 C + 6.5 D + 3.26 E
Interpretation of the Z"Score for 'NonManufacturers'
Altman Z"Score: Results are distributed into three riskranges as follows:
(ResultClassification and Cutoff Points)
Z"Score greater than 2.9 is deemed “Safe” (Possibility of company going bankrupt is very low)
Z"Score between 1.23 and 2.9 is the “Grey area” (or ignorance zone) (There exists a possibility of the company going bankrupt within the next two years)
Z"Score less than 1.23 is viewed as the “Distress” Zone (The possibility of a company’s bankruptcy is high)
Note: The classification of the results corresponds (is the same) to the fivevariable (5 ratio) model of Altman Z' Score model for Private Firms (i.e.: Z'Score)
This score uses statistical techniques to predict a company's probability of failure using the following 7 variables from a company's financial statements:
{For Z'' Score the following 7 inputs are essential: {Current Assets; Current Liabilities; Total Liabilities; EBIT; Total Assets; Retained Earnings; Book Value of Equity}
The 4 financial ratios in the Altman Z''Score for NonManufacturers and their respective weight factor is as follows:
RATIO

WEIGHTAGE


A

EBIT/Total Assets

x. 6.72

4 to +8.0



C

Book Value of Equity / Total Liabilities

x 1.05

4 to +8.0

D

Working Capital/Total Assets

x 6.5

4 to +8.0

E

Retained Earnings /Total Assets

x3.26

4 to +8.0

These ratios are multiplied by the weightage as above, and the results are added together.
Altman Z''Score (NonManufacturers) = (A x 6.72) + (C x 1.05) + (D x 6.5) + (E x 3.26)
The Interpretation of Z'' Score Model for NonManufacturers:
Z''SCORE ABOVE 2.9  The company is deemed Safe based on the given financial figures only.
Z''SCORE BETWEEN 1.23 and 2.9  On Alert. This is the grey area (or the Ignorance zone) and one should exercise Caution.
Z''SCORE BELOW 1.23  Probability of Financial Embarassment is very High.
2. THE ALTMAN Z''SCORE FOR EMERGING MARKETS
The Revised Model (A Variation Adapted for Emerging Markets)
In the 'Emerging Market' Model of Z" Score a constant of 3.25 is added. This is done to standardize the scores with a score of Zero equated to a D rated bond. D is for Default.
Due to lack of availability of data and/or credit experience in emerging markets it is not possible to build a model specific to an emerging market country. Once a quantitative assessment is done, it is recommended that the analyst perform additional qualitative assessment with risk factors like country risk, currency risk, industry risks and the firms competitive position the emerging country's marketplace.
Z"Score (Emerging Market Scoring (EMS) Model) is as follows:
Altman Z''Score (Emerging Markets) = 3.25 + (A x 6.72) + (C x 1.05) + (D x 6.5) + (E x 3.26)
Interpretation of the Z"Score for 'Emerging Markets':
Altman Z"Score: Results are distributed into three riskranges as follows:
(ResultClassification and Cutoff Points)
Z"Score greater than 2.6 is deemed “Safe” (Possibility of company going bankrupt is very low)
Z"Score between 1.1 and 2.6 is the “Grey area” (or the Ignorance zone)
Z"Score less than 1.1 is viewed as the “Distress” Zone (The possibility of a company’s bankruptcy is high)
Use the following Z''Score Insolvency Prediction Online Calculator for NonManufacturer and Emerging Markets to assess the financial stress.
Calculator  Altman Z'' Score (NonManufacturers and Emerging Markets)