Altman Z-Score — Bankruptcy Prediction Model Explained

Q: What is the Altman Z-Score?

The Altman Z-Score is a bankruptcy prediction model developed by Professor Edward Altman in 1968. It combines five financial ratios into a single score. Below 1.81 is the distress zone, 1.81-2.99 is the grey zone, and above 2.99 is the safe zone.

Q: What is a good Altman Z-Score?

An Altman Z-Score above 2.99 is considered the safe zone with low bankruptcy risk. Scores between 1.81 and 2.99 are in the grey zone requiring monitoring. Scores below 1.81 are in the distress zone with high bankruptcy probability within 2 years.

Q: How accurate is the Altman Z-Score?

In the original 1968 study, the model correctly predicted 72% of bankruptcies two years in advance. It works best for publicly-traded manufacturing companies and is most useful as part of a multi-signal approach alongside other distress indicators.

What Is the Altman Z-Score?

The Altman Z-Score is a quantitative financial model developed by Professor Edward Altman of New York University in 1968. It uses five financial ratios derived from a company’s balance sheet and income statement to predict the probability of corporate bankruptcy within two years. In original academic studies, the model correctly classified 72% of bankruptcies two years before they occurred.

Advantage Intel computes Z-Scores automatically from SEC XBRL financial data for distress-flagged companies — see live scores here.

The Altman Z-Score Formula

Z = 1.2×T1 + 1.4×T2 + 3.3×T3 + 0.6×T4 + 1.0×T5
T1 = Working Capital / Total Assets  (liquidity)
T2 = Retained Earnings / Total Assets  (cumulative profitability)
T3 = EBIT / Total Assets  (operating efficiency)
T4 = Market Cap / Total Liabilities  (leverage/solvency)
T5 = Revenue / Total Assets  (asset turnover)

How to Interpret the Z-Score

Z-Score Range	Zone	Interpretation
Below 1.81	Distress Zone	High probability of bankruptcy within 2 years.
1.81 – 2.99	Grey Zone	Uncertainty — monitor closely.
Above 2.99	Safe Zone	Low bankruptcy risk based on current financials.

Limitations of the Altman Z-Score

Less accurate for financial services companies (banks, insurers)
Based on historical accounting data — may lag real-time deterioration
Does not capture qualitative factors: management changes, regulatory risk, competitive position
Works best as part of a multi-signal approach alongside distress 8-K flags, insider selling, and short interest

Advantage Intel pairs Z-Scores with the Piotroski F-Score (operating quality) and Beneish M-Score (earnings manipulation risk) for a comprehensive distress view, then cross-references with real-time SEC filings and insider activity via the Trifecta engine.

See live Altman Z-Scores for distress-flagged companies

Advantage Intel auto-computes Altman Z, Piotroski F, and Beneish M scores from SEC XBRL data for every company that has triggered a distress signal — updated daily.

See live distress scores → Get Full Access

Frequently Asked Questions

What is the Altman Z-Score?

A bankruptcy prediction model using 5 financial ratios: Z = 1.2×(Working Capital/TA) + 1.4×(Retained Earnings/TA) + 3.3×(EBIT/TA) + 0.6×(Market Cap/TL) + 1.0×(Revenue/TA). Below 1.81 = distress zone.

What is a good Altman Z-Score?

Above 2.99 = safe zone (low bankruptcy risk). 1.81–2.99 = grey zone (monitor). Below 1.81 = distress zone (high bankruptcy probability within 2 years).

How accurate is the Altman Z-Score?

72% accuracy predicting bankruptcy 2 years in advance in the original 1968 study. Most reliable for public manufacturing companies. Works best combined with other signals like SEC distress flags and insider selling patterns.

Altman Z-Score: The Bankruptcy Prediction Model Explained

What Is the Altman Z-Score?

The Altman Z-Score Formula

How to Interpret the Z-Score

Limitations of the Altman Z-Score

Frequently Asked Questions