MBATricks

Tips and Tricks about my MBA experience

Finance :: Altman’s Z-Score Formula

Altman’s Z-Score Formula helps to predict bankruptcy of a company.

Z’ = .717T1 + .847T2 + 3.107T3 + .420T4 + .998T5

Zones of Discrimination:

Z’ > 2.9 -“Safe” Zone
1.23 < Z' < 2. 9 -“Grey” Zone
Z’ <>

where:

T1 = (Current Assets-Current Liabilities) / Total Assets

T2 = Retained Earnings / Total Assets

T3 = Earnings Before Interest and Taxes / Total Assets

T4 = Book Value of Equity / Total Liabilities

T5 = Sales/ Total Assets

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