Altman zone

What it measures¶

The Altman Z-score is a single number built from five ratios of the balance sheet, income statement and share price, each multiplied by a fixed weight. Edward Altman chose the ratios and weights in 1968 to separate manufacturers that went bankrupt from those that did not. The original Z is:

• 1.2 × working capital ÷ total assets (working capital is current assets minus current liabilities);
• + 1.4 × retained earnings ÷ total assets (profit kept in the business over the years);
• + 3.3 × operating profit ÷ total assets;
• + 0.6 × market value of the shares ÷ total liabilities;
• + 1.0 × revenue ÷ total assets.

For companies that are not manufacturers, the Z″ form drops the revenue ratio, uses the equity on the balance sheet instead of the share price, and carries its own weights (6.56, 3.26, 6.72 and 1.05) and its own zones. The check asks: is the score in the safe zone?

Why it is on the page¶

It is one of the oldest and most tested screens for financial distress. A company in the distress zone is one whose figures resemble, on these five ratios, those of companies that failed — which is why a distress reading also caps the band's overall word.

Thresholds, their source and the population they were fitted on¶

The bar in the evidence panel shows all three zones with their boundaries.

• Source: Altman (1968) for Z; Altman's later Z″ form for non-manufacturers and companies outside the US.
• Fitted on: 66 US manufacturers, half of them bankrupt, from 1946–1965. A 2017 international review found the original weights still told failing companies from others with an accuracy (AUC) of about 0.75, where 0.5 is a coin toss and 1.0 is perfect; other studies found the weights drifting on later data.
• Evidence grade: peer-reviewed and replicated (the model); practitioner convention (applying Z″ widely).
• Basis: absolute. The model is not meant for banks and insurers, which the summary does not score.

A worked example¶

Honeywell International, fiscal year 2025, is treated as a manufacturer (statements stored on 25 October 2026). Its five terms add up to Z = 2.66: in the grey zone, so the check failed — but not in distress, so no cap. The tile's reason sentence read Altman zone (2.66) misses Z > 2.99, absolute.

Meta Platforms, a non-manufacturer, the same year: Z″ = 5.34, well inside the safe zone — passed.

What “No verdict” means here¶

The check is not evaluable when any of its inputs is missing — most often total liabilities, retained earnings or, for the original form, the share count needed for the market value. The missing input is named and the check leaves the area's count. The score is never computed from four of its five terms.

What the verdict is and is not¶

The zone is a screen fitted on manufacturers of the 1950s and 1960s. A grey or distress reading is a reason to look at the debt and the cash closely; it is not a forecast of bankruptcy, and a safe reading is not a guarantee. It is not an instruction to trade the shares. The Fundamentals page shows the score's five terms on the Altman Z-Score row.