Altman Z-Score
A bankruptcy prediction formula developed by Edward Altman. Combines five ratios to predict financial distress. Above 2.9 = Safe Zone, 1.23-2.9 = Grey Zone (monitor closely), Below 1.23 = Distress Zone (high bankruptcy risk within 2 years).
- How it's worked out
- 0.717×(Working Capital/Assets) + 0.847×(Retained Earnings/Assets) + 3.107×(Operating Profit less Depreciation/Assets) + 0.420×(Equity/Liabilities) + 0.998×(Sales/Assets)
- Which way is better
- Higher is betterHigher is better for cash.
Written by Mandy Walker, founder of Focus on Cash. Updated October 2026. This explanation comes from the glossary inside Focus on Cash, so it matches the words you see in the app.
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