Altman ZScore Calculator
An Altman ZScore calculator is a tool used to assess the financial health and bankruptcy risk of a company. It was developed by Dr. Edward I. Altman in the 1960s and is widely used by analysts and investors to determine the likelihood of a company going bankrupt within a specific time frame, typically within two years.
The Altman ZScore is based on a formula that takes into account various financial ratios and assigns a numerical score to a company. The formula consists of multiple variables, which can be divided into four categories:

Working Capital/Total Assets (WC/TA): This ratio measures a company’s liquidity and is calculated by dividing its working capital (current assets minus current liabilities) by its total assets.

Retained Earnings/Total Assets (RE/TA): This ratio assesses a company’s profitability by dividing its retained earnings by its total assets.

Earnings Before Interest and Taxes/Total Assets (EBIT/TA): This ratio evaluates a company’s operating efficiency by dividing its earnings before interest and taxes by its total assets.

Market Value of Equity/Total Liabilities (MV/E): This ratio considers a company’s market value of equity (market capitalization) in relation to its total liabilities.
The Altman ZScore formula is as follows:
ZScore = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where: A = WC/TA B = RE/TA C = EBIT/TA D = MV/E E = Sales/TA
Based on the calculated ZScore, a company falls into one of the following categories:
 ZScore > 2.99: The company is considered safe from bankruptcy.
 1.81 < ZScore < 2.99: The company is in a gray area, indicating some risk of bankruptcy.
 ZScore < 1.81: The company is in financial distress, and there’s a higher likelihood of bankruptcy.
Altman’s ZScore has been widely used in financial analysis, especially for assessing the creditworthiness of companies. However, it’s important to note that the ZScore is not foolproof, and its effectiveness can vary depending on the industry and economic conditions. It should be used in conjunction with other financial analysis tools and information to make wellinformed investment or credit decisions. Additionally, keep in mind that financial data can change rapidly, so it’s essential to use the most recent financial statements when applying the ZScore formula.