Forensic Scores
What is Altman Z-Score?
A bankruptcy-risk score that weighs working capital, retained earnings, operating profit and book equity against the size of the balance sheet.
How it is calculated
The Z’’ variant, which uses book equity instead of market value: 6.56 x working capital / assets + 3.26 x retained earnings / assets + 6.72 x operating income / assets + 1.05 x equity / liabilities.
How to read it
Above 2.6 is the safe zone, below 1.1 is the distress zone, and the band between is grey. A falling score over several years matters more than any single reading.
Keep in mind
Companies that have bought back most of their stock, like Apple and Dell, carry negative retained earnings or negative equity and score low without being in any danger. Banks are not scored because they have no working capital in the usual sense. Annual reports and trailing twelve months only.
Where the numbers come from
Scrutar computes Altman Z-Score from the figures each company reports to the SEC in its annual and quarterly filings, using the XBRL data attached to those filings.