What is the Altman zScore?

Altman zScore

Dictionary Definition

The Altman Z-Score is the output of a credit-strength test that helps gauge the likelihood of bankruptcy for a publicly traded company.  The Z-score is based on five key financial ratios that can be found and calculated from a company’s annual 10K report. 

Plain English

This is a score that gauges the likelihood that a company is headed for bankruptcy.

Why it Matters to You

This is a good metric for any company to review.  Should the company fall into the grey area, not specifically headed for bankruptcy but not in the clear, it is a great time to sit down with your trusted advisors and create a plan to turn the financials around and start moving in the right direction.  If the company’s zScore does indicate it is headed for bankruptcy, there still may be action items your trusted advisors could help with to slow or stop the process.