Debt and bankruptcy risk · updated October 21, 2026
What is the Altman Z-score and how is it calculated
The Altman Z-score combines five numbers from the balance sheet and income statement into a single number that shows how close a company is to bankruptcy. Professor Edward Altman created it in 1968, and banks and investors still use it today.
The Altman Z-score formula
- A
- Working capital (current assets − current liabilities) ÷ total assets.
- B
- Profit reinvested over the years ÷ total assets.
- C
- Operating profit ÷ total assets.
- D
- Market cap ÷ total liabilities.
- E
- Sales ÷ total assets.
Worked example
For a manufacturer: A = 0.15, B = 0.30, C = 0.12, D = 1.5, E = 1.1.
Above 2.99, the company is in the safe zone.
How to read the Altman Z-score
For companies that are not manufacturers (services, retail, tech), the Z″ version is used: 6.56·A + 3.26·B + 6.72·C + 1.05·D, where D uses book equity. Its thresholds are 1.1 and 2.6. On our pages we show the right version for each company.
When the Altman Z-score can fool you
Banks and insurers: the model does not apply. Young companies growing out of losses: reinvested profit is negative and the score comes out low, even when they have plenty of cash.
Related terms
Questions about the Altman Z-score
How accurate is the Altman score?
In the original study it correctly predicted about 8 out of 10 bankruptcies one year ahead. It is a statistical signal, not a certainty.
What is Altman Z″?
The version for companies that are not manufacturers. It leaves out sales, which vary a lot between sectors.
These explanations are for information only. They are not a recommendation to buy or sell.
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