Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Altman's Z-Score

What it is:

Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy.

How it works (Example):

Altman's Z-score is used to determine the likelihood of a company going bankrupt. A company's Altman's Z-score is calculated using basic indicators found on its financial statements (e.g. earnings, assets, liabilities, equity, etc.). Lower and negative Altman's Z-scores mean that a company is more likely to go bankrupt, whereas higher and positive Z-scores mean that a company will survive.

For example, suppose company XYZ is given an Altman's Z-score of 3 and that company ABC is given an Altman's Z-score of 1. Of these two, company ABC is more likely to go bankrupt.

Click here to learn how to Use the Z-Score to Predict the Next Enron. 

Why it Matters:

The Altman's Z-score is a vital indicator of a company's financial health and likelihood to survive. Therefore, Altman's Z-score is important in auditing as well as analyzing credit