Glossary

Altman Z-score (bankruptcy risk)

The Altman Z-score blends five balance-sheet and income ratios into a single solvency score that flags how close a company is to financial distress.

The Z-score, devised by Edward Altman in 1968, weights five ratios (working capital, retained earnings, EBIT, market value of equity, and sales, each scaled by assets) into one number.

Above 2.99 is the “safe” zone, 1.81 to 2.99 is the “grey” zone, and below 1.81 is the “distress” zone where bankruptcy risk historically rises. It works best for manufacturers and less well for financials and asset-light software.

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