What is a Z-Score?
As one of the common indicators used to gauge the stability of a business, the z-score is a measure of the difference between the value of the company and the average value of companies of similar size and functioning as part of the same industry. Sometimes referred to as a standard score, the z-score is a principle that is requires investigation into several different aspects of the business operation in order to be effective. The z-score often involves careful research, so that a number of ratios regarding aspects of the corporation can be developed and applied. Among the data analysis that is collected is the rate of production, average pay per hourly employee, marketing budget, capital assets, and growth projections for the next several years. Along with the data analysis, the z-score will also include a thorough credit analysis as well. The financial condition of the company, including the credit-worthiness of the corporation, provides a great deal of relevant information that can
(In statistics, that is…) If you have (or if you assume you have a Gaussian distribution), then a z-score of 0 corresponds to the middle of the distribution, a z-score of 1 corresponds to an event that is 1 standard deviation above the mean, and z-scores bigger than 3 or smaller than -3 correspond to rare events in the tails of the distribution. If you have measurements like positions, the z-score is a simple linear scaling of the data. If you have measured probabilities, like “the fraction of the class that failed the test”, then the z-score is the inverse of the cumulative distribution function for a Gaussian probability distribution. That’s an s-shaped nonlinear function. For more details, see [ 1, 2, 3, or 4 ] for more details.
