Definition
The Altman Zscore (ZScore) is a formula for determining the probability that a private company is heading for financial failure. The formula is made up of liquidity, solvency, profitability, leverage and activity ratios. Each ratio is given a weighting, culminating in the calculation of the ZScore.
The formula is calculated as follows:
Financial Ratio 
Numerator 
Denominator 
Multiple 
Result 
Liquidity 
Working Capital 
Total Assets 
0.717 
A 
Solvency 
Retained Earnings 
Total Assets 
0.847 
B 
Profitability 
Annualised Profit before Interest and Tax 
Total Assets 
3.107 
C 
Leverage 
Book Value of Equity 
Total Liabilities 
0.420 
D 
Activity 
Annualised Sales 
Total Assets 
0.998 
E 
Altman ZScore 
Sum of A + B + C + D + E 


ZScore 
Interpreting the Altman ZScore
The ZScore returns a number that can be used to interpret a set of financial accounts as follows:
ZScore Result 
Probability of Failure 
> 2.90 
Low 
1.23 – 2.90 
Moderate 
< 1.23 
High 
The exported excel “Insolvency Score” is available at the bottom of the extract.
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