What is the Altmans Z-Score?
The ALTMAN’S Z-SCORE is a series of ratios is used to predict a bankruptcy up to 2 years before it happens. The original Z-score formula was developed by Dr. Edward I. Altman in 1968. This widely accepted tool adds the results of 5 financial ratios. The resulting total is used to to assess the company’s financial viability as a going concern: • Working Capital / Total Assets. • Retained Earnings / Total Assets. • Earnings Before Interest and Taxes / Total Assets. • Market Value of Equity (MVE) / Book value of Total Debt. MVE is not a readily available number for privately held companies, so I often use a ‘rule of thumb’ valuation to calculate the Market Value of Equity. • Net Sales / Total Assets. Please refer to our Financial Ratios Page for more information about The Altman’s Z-Score and other commonly used financial analysis tools. Your business plan will be more impressive if you provide ratio analysis and the Altman’s Z-Score. Banks and investors will calculate this data anyway; b
