Altman Z-Score Calculator
Estimate a company's bankruptcy-risk Z-score from five financial ratios (manufacturing model).
Input Data
Results
At a glance:The Altman Z-score (manufacturing model) is Z = 1.2 x X1 + 1.4 x X2 + 3.3 x X3 + 0.6 x X4 + 1.0 x X5, where X1..X5 are the five ratios. Higher Z = lower bankruptcy risk. Thresholds are probabilistic: Z > 2.99 safe, 1.81-2.99 grey, < 1.81 distressed — not an absolute judgement. X3 (EBIT/assets) has the highest weight (3.3), so improving operating profit most raises Z.
Formula
Z = 1.2 × X1 + 1.4 × X2 + 3.3 × X3 + 0.6 × X4 + 1.0 × X5.
X1 = working capital / total assets, X2 = retained earnings / total assets, X3 = EBIT / total assets, X4 = equity / total liabilities, X5 = sales / total assets.
$$Z = 1.2X_1 + 1.4X_2 + 3.3X_3 + 0.6X_4 + 1.0X_5$$How to Use
- Enter the five ratios (X1 to X5) for the company.
- View the Z-score and its risk zone.
- Use the result as a warning and combine with cash flow and industry factors.
FAQ
How do I read the Z-score zones?
In the original manufacturing model: Z > 2.99 is the safe zone, 1.81-2.99 the grey zone (watch), and < 1.81 the distress zone (high bankruptcy risk within two years historically). The thresholds are probabilistic risk gradings, not a definitive bankruptcy call.
Which ratio matters most?
X3 (EBIT / total assets) has the highest weight (3.3), so improving core operating profitability is the most effective way to raise Z. The next is X4 (equity / liabilities) — reducing leverage also helps. This turns the score into a clear improvement priority list.
Is one model enough for all firms?
No. This calculator uses the manufacturing-company model. Private firms use the Z'-score (with equity/liabilities at book value and no market-value weighting), and non-manufacturers/service firms use the Z''-score (dropping X5). Apply the right model for the firm type; misuse can misgrade risk.
What are the limitations of the Z-score?
It is a statistical warning based on historical financials, not a prophecy. It can be distorted by one-off items, accounting policies and industry specifics, and does not capture management, market or macro shocks. Use it alongside cash flow, liquidity, industry cycles and qualitative factors, not as a standalone verdict. In Hong Kong, also watch the company's filings with the Companies Registry and any credit-rating alerts.
Is the Z-score useful in Hong Kong?
Yes — as a screening tool for listed and private companies' financial health, supplier/customer credit risk and investment due diligence. But local context matters: rely on audited accounts, note industry differences, and for listed firms also read disclosures and any credit-rating changes. The score flags risk early; judgement and other data confirm it.
Related Tools
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.