Altman Z-Score
What it measures¶
The Altman Z-Score is a screen for financial distress: five ratios of the accounts and the share price, each weighted, added into one number. Edward Altman built it in 1968 to separate manufacturers that went bankrupt from those that did not. Its ratios are working capital (current assets minus current liabilities), retained earnings, operating profit and revenue, each against total assets, and the value of the shares against total liabilities.
Three variants exist, each with its own weights and zones:
- Z — the original, for listed manufacturers;
- Z′ — for companies whose shares are not listed, using book equity instead of the share price;
- Z″ — for companies that are not manufacturers, without the revenue ratio.
The Fundamentals page chooses the variant by the company's sector and names it.
Why it is on the page¶
It is the oldest widely tested distress screen. A company in the distress zone has figures resembling, on these five ratios, those of companies that failed. The condition summary's Altman zone check uses the same model and caps the overall word when it reads distress.
Thresholds, their source and the population they were fitted on¶
| Variant | Distress | Grey | Safe |
|---|---|---|---|
| Z | below 1.81 | 1.81 to 2.99 | above 2.99 |
| Z′ | below 1.23 | 1.23 to 2.90 | above 2.90 |
| Z″ | below 1.10 | 1.10 to 2.60 | above 2.60 |
- Source: Altman (1968) for Z; Altman's later Z′ (1983) and Z″ (1995) forms.
- Fitted on: 66 US manufacturers, 1946–1965, half of them bankrupt. A 2017 international review found an accuracy (AUC) of about 0.75, where 0.5 is a coin toss and 1.0 perfect.
- Evidence grade: peer-reviewed and replicated.
The page uses today's share price in the market-value ratio, because historical market values are not stored, so it scores only the newest period. The condition summary uses the book equity in Z″, as Altman published it — so the two figures for a non-manufacturer can differ.
A worked example¶
Celestica, as the Fundamentals page showed it on 9 August 2026: Z″ = 12.22, deep in the safe zone. Honeywell International, as the condition summary computed it on 25 October 2026: Z = 2.66, in the grey zone.
What “No verdict” means here¶
The row carries no verdict of its own; the panel header shows its area's verdict. It reads insufficient data when any of the five ratios cannot be computed, and not applicable for banks and insurers, for which the model is not meant.
What the verdict is and is not¶
A zone describes a resemblance to companies of the 1950s and 1960s that failed or did not. It is not a forecast of bankruptcy, a safe reading is not a guarantee, and neither is an instruction to trade the shares.