The Z Altman Score Calculator is a powerful financial tool designed to assess a company's likelihood of facing financial distress. Named after Edward Altman, the Z-score is a numerical representation derived from a formula that considers various financial ratios. Understanding this score is crucial for investors, creditors, and analysts, as it provides valuable insights into a company's financial health.
Formula of Z Altman Score Calculator
The Z Altman Score is calculated using the following formula:
Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where:
- A = Working Capital / Total Assets
- B = Retained Earnings / Total Assets
- C = Earnings Before Interest and Taxes (EBIT) / Total Assets
- D = Market Value of Equity / Total Liabilities
- E = Sales / Total Assets
This formula evaluates key financial ratios, offering a comprehensive view of a company's overall financial position.
General Terms Table
Before delving into the intricacies of the Z Altman Score, let's simplify the process for users. Here's a quick reference table for common terms associated with the calculator:
| Term | Definition |
|---|---|
| Working Capital | Current Assets minus Current Liabilities |
| Retained Earnings | Accumulated profits not distributed as dividends |
| EBIT | Earnings Before Interest and Taxes |
| Market Value of Equity | Current market value of shareholders' equity |
| Sales | Total revenue generated from primary operations |
Example of Z Altman Score Calculator
To illustrate the practical application of the Z Altman Score, let's consider a hypothetical scenario:
Suppose a company has a Z-score of 2.5. According to Altman's classification, a Z-score below 1.8 indicates a high risk of bankruptcy, while a score above 3.0 suggests financial stability. In this case, the company falls within the "Safe Zone," indicating a lower risk of financial distress.
Most Common FAQs
A: Generally, a Z-score above 3.0 is considered safe, while a score below 1.8 raises concerns about financial health.
A: Yes, a negative Z-score implies a high risk of bankruptcy.
A: It's advisable to calculate the Z-score periodically, especially during significant financial changes or economic downturns.