Altman Z-Score (Insolvency Risk)
Estimate insolvency risk with the Altman Z-Score, combining working capital, retained earnings, EBIT, book equity and total assets/liabilities into a single distress indicator.
Data verified · July 2026
Does a Z-Score in the distress zone mean the company will fail?
No — it flags a statistically elevated risk of insolvency within two years based on historical patterns, not a certainty. It should trigger closer review, not an automatic conclusion.
Source: Altman, E.I. (1968), Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy, Journal of Finance; ACCA Advanced Financial Management (AFM), corporate failure prediction models. · updated 2026
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Everything about Altman Z-Score (Insolvency Risk)
📋Overview+
The Altman Z-Score combines five weighted financial ratios — working capital to total assets, retained earnings to total assets, EBIT to total assets, book value of equity to total liabilities, and (in some variants) sales to total assets — into a single score. Scores above roughly 2.99 indicate a 'safe' zone, between 1.81 and 2.99 a 'grey' zone of elevated risk, and below 1.81 a 'distress' zone historically associated with a high probability of insolvency within two years.
💡 Best practices
- The Z-Score was developed on US manufacturing data — treat the exact thresholds as directional for UK service businesses, not a precise cutoff.
- A single low reading can be distorted by an unusual one-off item (asset write-down, exceptional cost) — check the trend across several periods.
- Combine the Z-Score with qualitative signals (customer concentration, covenant headroom, cash runway) rather than relying on it alone.
🔢 Concrete example
£100,000 working capital, £150,000 retained earnings, £80,000 EBIT on £600,000 total assets, £300,000 total liabilities and £250,000 book equity: a Z-Score comfortably in the safe zone.
📖User guide+
How to use this calculator
- 1
Enter working capital (current assets minus current liabilities) and total assets.
- 2
Enter retained earnings and EBIT (earnings before interest and tax).
- 3
Enter total liabilities and the book value of equity.
- 4
Read the Z-Score and which zone (safe, grey, distress) it falls into.
📚Glossary+
- Z-Score
- A weighted combination of balance sheet and income statement ratios developed by Edward Altman to predict the probability of corporate insolvency within two years.
- Grey zone
- The Z-Score band (roughly 1.81 to 2.99) where insolvency risk is elevated but not conclusively predicted — warranting closer monitoring rather than immediate alarm.
ℹ️Sources & updates+
Last data update
July 7, 2026
Sources and references
Altman, E.I. (1968), Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy, Journal of Finance; ACCA Advanced Financial Management (AFM), corporate failure prediction models.
The data in this calculator is updated regularly to reflect the latest official rates. When in doubt, consult the official sources listed above.
FAQ — Altman Z-Score (Insolvency Risk)
Does a Z-Score in the distress zone mean the company will fail?+
No — it flags a statistically elevated risk of insolvency within two years based on historical patterns, not a certainty. It should trigger closer review, not an automatic conclusion.
Can the Z-Score be used for any company size?+
The original model was calibrated on listed manufacturers; smaller and private companies, and services businesses, are better assessed with adapted variants — treat results here as an indicative screening tool.