Altman Z-Score

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Altman Z-Score

A method for determining the likelihood of a company's bankruptcy in the coming two years. A company's Z-score is determined by the application of four or five ratios as variables, each weighted for importance according to a certain formula. The original ratios are working capital / total assets, retained earnings / total assets, EBIT / total assets, market value of equity / book value of liabilities, and sales / total assets. Different versions of the Altman Z-score may use slightly different variables and may weight them differently. A higher score is a positive sign, with a score over 2.99 meaning the company is "safe." The Z-score has predicted corporate bankruptcies with more than 70% accuracy.
References in periodicals archive ?
A common form of assessing the risk of a firm is the Altman Z score bankruptcy model and this has been used in previous studies to assess the impact of treating operating leases as finance leases on a firms overall financial results.
This study examines the key financial ratios (return on total assets and debt to equity) and the Altman Z score of the major company in the telecommunications sector and two major companies in the aviation sector in Australia using their annual financial reports for 2015 and 2016.
This effectively is the form of demographic information, but more importantly provides the values from which further evaluations, such as ratios and the Altman Z score, are extrapolated.
The results of the Altman Z Score for Virgin Australia are summarised in Table 8 with the category of discrimination zone indicated by the highlight colour for the interpretation of the Altman Z score.
The results of the Altman Z Score for Telstra are summarised in Table 9 with the category of discrimination zone indicated by the highlight colour for the interpretation of the Altman Z score.
According to the results of the calculations Virgin has an Altman Z Score which in 2015 was within the "safe zone" and whilst the new leasing standard did reduce the z score for 2015 it remained in the same safe zone.
The Next stage of the analysis involves the computation of the Altman Z Scores for the three companies under the current leasing standard and the proposed new leasing standard.
Instead of providing financial statements, Rusch calculates the company's Altman Z score and offers vendors a public accounting firm attestation to his calculation that is based on the information in the financial statements.
"An Altman Z score is a metric that runs financial statement information through a model to indicate the likelihood of bankruptcy," Rusch explains.