ALTMAN ZSCORE: Online ZScore Calculator
Using Multiple Discriminant Analysis Edward Altman combined a set of 5 financial ratios to come up with the Altman ZScore. This score uses statistical techniques to predict a company's probability of failure using the following 8 variables from a company's financial statements:
{For Z Score the following 8 inputs are essential: {Current Assets; Current Liabilities; Total Liabilities; EBIT; Total Assets; Net Sales; Retained Earnings; Market Value of Equity}
The 5 financial ratios in the Altman ZScore and their respective weight factor is as follows:
RATIO

WEIGHTAGE


A

EBIT/Total Assets

x. 3.3

4 to +8.0

B

Net Sales /Total Assets

x 0.999

4 to +8.0

C

Market Value of Equity / Total Liabilities

x 0.6

4 to +8.0

D

Working Capital/Total Assets

x 1.2

4 to +8.0

E

Retained Earnings /Total Assets

x1.4

4 to +8.0

These ratios are multiplied by the weightage as above, and the results are added together.
ZScore = A x 3.3 + B x 0.99 + C x 0.6 + D x 1.2 + E x 1.4
The Interpretation of Z Score:
ZSCORE ABOVE 3.0 The company is safe based on these financial figures only.
ZSCORE BETWEEN 2.7 and 2.99  On Alert. This zone is an area where one should exercise caution.
ZSCORE BETWEEN 1.8 and 2.7  Good chances of the company going bankrupt within 2 years of operations from the date of financial figures given.
ZSCORE BELOW 1.80 Probability of Financial embarassment is very high.