ALTMAN Z-SCORE

"ALTMAN Z-SCORE reliably predicts whether a company is likely to enter bankruptcy within a year or two: ALTMAN Z-SCORE If your Z-Score is 3.0 or higher - bankruptcy is unlikely. ALTMAN Z-SCORE If the Z-Score is 1.8 or less - bankruptcy is likely. ALTMAN Z-SCORE A Z-Score between 1.8 and 3.0 is the gray area, meaning a high degree of caution should be used. ALTMAN Z-SCORE The odds of bankruptcy within the above ranges are 95% within one year and 70% within two years. The A-Score between the two is the gray area. Obviously, a higher Z-score is desirable. It is best to evaluate the Z-Score for each individual company against that of the industry. In low profit margin industries, it is possible for Z-scores to fall below the above. In such cases comparing the trend with the industry over successive periods of time may be a better indicator. It must be remembered that the Z-Score is only as valid as the data from which it is derived, i.e. if a company alters or falsifies its financial records/books, the Z-Score derived from those “cooked books” is less useful."

Altman Z-Score is a financial distress model that uses a set of ratios to estimate the likelihood of bankruptcy. It is used as an early warning indicator, and should be interpreted in the context of industry and data quality.

- Used to explain the concept in accounting and business contexts.
- Used when training staff or documenting procedures and policies.

- Example: Teams reference **ALTMAN Z-SCORE** when defining terms in manuals, policies, or training materials.

- Why it matters: Improves clarity and consistency across documentation and decision-making.