Assess financial health using the Altman Z Score with our calculator.
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The Altman Z-Score is a financial metric developed by Edward I. Altman in the 1960s. It’s used to assess the likelihood of a company facing financial distress or bankruptcy within two years. The Z-Score formula takes into account multiple financial ratios to provide an overall score that can help investors, creditors, and analysts evaluate a company’s financial health and credit risk.
How to Use the Altman Z-Score Calculator
Step 1: Gather Financial Data
Collect the required financial information from the company’s financial statements, including the most recent balance sheet and income statement. You’ll need the following data:
- Working Capital (WC): The difference between a company’s current assets and current liabilities.
- Retained Earnings (RE): The accumulated net profits retained in the company, also known as shareholders’ equity.
- Earnings Before Interest and Taxes (EBIT): The company’s operating income before deducting interest and income taxes.
- Market Value of Equity (MVE): The market capitalization or the market value of the company’s equity, which is the number of outstanding shares multiplied by the share price.
- Book Value of Total Liabilities (BVTL): The total value of the company’s liabilities as reported on the balance sheet.
Step 2: Enter the Data
Input the gathered financial data into the Altman Z-Score Calculator. Make sure you enter the values correctly.
Step 3: Calculate
Click the “Calculate” button. The Altman Z-Score Calculator will process the data and provide you with the Altman Z-Score. The score will indicate the company’s financial health and credit risk based on the following criteria:
- Z-Score > 2.6: The company is considered safe and is less likely to face financial distress.
- 1.1 < Z-Score < 2.6: The company is in a gray area and may face financial difficulties in the future.
- Z-Score < 1.1: The company is at high risk of financial distress or bankruptcy.
The Altman Z-Score is a valuable tool for investors and creditors when evaluating a company’s financial stability and creditworthiness. It helps in making informed decisions about investments or extending credit to a company.