Altman Z-Score

Credit & Risk Scoring
Updated Apr 2026 • Has calculator

A multi-factor bankruptcy prediction model combining five financial ratios into a single score.

What is Altman Z-Score?

The Altman Z-Score, developed by NYU professor Edward Altman in 1968, combines five weighted financial ratios into a single score that predicts the probability of corporate bankruptcy within two years. Originally validated on public manufacturing companies, it remains widely used by credit analysts, lenders, and investors. Scores above 2.99 indicate a 'Safe Zone'; scores between 1.81 and 2.99 are the 'Grey Zone'; scores below 1.81 suggest significant distress risk. Modified versions exist for private firms and non-manufacturers.

Formula

Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Worked Example

Worked example — Apple Inc. (AAPL)

FY2024

Step 1  A = Working Capital / Total Assets = −$23,405M / $364,980M = −0.064
Step 2  B = Retained Earnings / Total Assets = −$19,154M / $364,980M = −0.052
Step 3  C = EBIT / Total Assets = $123,216M / $364,980M = 0.338
Step 4  D = Market Cap / Total Liabilities = $3,500,000M / $308,030M = 11.362
Step 5  E = Revenue / Total Assets = $391,035M / $364,980M = 1.071
Step 6  Z = 1.2(−0.064) + 1.4(−0.052) + 3.3(0.338) + 0.6(11.362) + 1.0(1.071) = 8.85
Step 7  → Well above 2.99 — Apple is firmly in the Safe Zone

Source: Apple 10-K FY2024 (2024-11-01)

Calculate Altman Z-Score

Current assets minus current liabilities (can be negative), in millions of USD

Accumulated retained earnings from the balance sheet (can be negative), in millions of USD

Earnings before interest and taxes in millions of USD

Total market capitalization in millions of USD

Total liabilities from the balance sheet in millions of USD

Total assets from the balance sheet in millions of USD

Total annual revenue in millions of USD

Altman Z-Score

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Not investment advice.

How to Interpret Altman Z-Score

< 1.81
Distress Zone — high probability of bankruptcy within 2 years
1.81 – 2.99
Grey Zone — uncertain, requires closer monitoring
> 2.99
Safe Zone — low near-term bankruptcy risk

📚 Return Metrics — Complete the path

  1. ROA
  2. ROIC
  3. DuPont 3-Step
  4. BVPS
  5. Altman Z-Score
Sources
  1. Altman, E.I. — 'Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy,' Journal of Finance, 1968
  2. Investopedia — Altman Z-Score