Altman Z-Score: formula and how to read it

Bankruptcy risk; above 3 is safe, below 1.8 is distressed. 1.2×working capital + 1.4×retained earnings + 3.3×operating income + 1.0×sales, each divided by total assets, plus 0.6×market value ÷ total liabilities. Not calculated for financial, utility or real-estate companies, whose heavy debt is normal for their business.

Stock Meadow groups it under Financial health, and shows it in tables as Altman Z.

Z = 1.2×(working capital ÷ total assets) + 1.4×(retained earnings ÷ total assets) + 3.3×(operating income ÷ total assets) + 1.0×(sales ÷ total assets) + 0.6×(market value of equity ÷ total liabilities)

A company whose five terms add up to 3.4 sits in the safe zone. One scoring 1.5 sits in the distress zone. The numbers are made up for illustration.

A higher score means lower estimated bankruptcy risk. Above about 3 is generally read as safe, between about 1.8 and 3 as a grey zone, and below 1.8 as distressed.

When Stock Meadow ranks stocks, a higher figure scores better. On a stock, a score below 1.81 (the distress zone) raises a warning flag, and above 2.99 is the safe zone.

• The model was built on manufacturing companies in the 1960s, so it fits other business types less well.
• Not calculated for financial, utility or real-estate companies, whose heavy debt is normal for their business.
• A score is a risk signal, not a prediction that any company will fail.

How Stock Meadow handles gaps. Usually blank when the balance-sheet figures it needs aren't available.

Treat any single metric as one clue, and read the company's financial statements before drawing a conclusion. Stock Meadow's figures are research tools based on reported data, not investment advice.

In Weighted ranking, Z-score composite and Balanced (no weak link), you choose the metrics and weights yourself, so you can include it in a custom score.

No fixed-recipe model scores it.

Read about every scoring model on the scoring models page.

• Interest Coverage Ratio: how easily profits cover interest payments.
• Net Debt to EBITDA: years of earnings needed to pay off debt.
• Beneish M-Score: earnings-quality check; above −1.78 is a warning sign.

What is a good Altman Z-Score?

Above about 3 is generally read as safe and below 1.8 as distressed, with a grey zone between. Stock Meadow flags those two thresholds as risk checks on a stock.

Is a higher or lower Altman Z better?

When Stock Meadow ranks stocks, a higher figure scores better. That is a ranking convention, so read Altman Z alongside other measures and compare similar companies.

Why is Altman Z blank for some stocks?

It is usually blank when the balance-sheet figures it needs aren't available. Stock Meadow leaves the figure blank rather than guessing it.