How Do You Calculate An Altman Z Score?
The Altman Z-score is a formula that was created by Edward Altman in 1968. The score combines five different financial ratios in order to determine the fiscal health of a company. The formula can predict bankruptcy and failure that will occur, usually within a two-year time period. In order to compute the Z-score you will need to gather the following information: Earnings before interest and taxes (EBIT), total assets, net sales, market value of equity, total liabilities, current assets, current liabilities, and retained earnings. All of that information will be found in the financial statements of a company. The standard formula for Z score is: (Earnings before Interest/Total Assets x 3.3) + (Net Sales/Total Assets x .99) + (Market Value of Equity/Total Assets x 0.6) + (Working Capital/Total Assets x 1.2) + (Retained Earnings/Total Assets x 1.4). The total of that formula provides the Z score. If the company has a Z score that falls above a 3.0, the company is said to be safe and has
