Definition of Altman z-score:
One can calculate the Altman Z-score as follows:.
Created by New York University Professor Edward Altman, this method is a valid indictor of bankruptcy. This measures your ability to pay or expect solvency.
The Altman Z-score is the output of a credit-strength test that gauges a publicly-traded manufacturing company's likelihood of bankruptcy. The Altman Z-score is based on five financial ratios that can calculate from data found on a company's annual 10-K report. It uses profitability, leverage, liquidity, solvency, and activity to predict whether a company has a high probability of becoming insolvent.
How to use Altman z-score in a sentence?
- The Altman Z-score is a formula for determining whether a company, notably in the manufacturing space, is headed for bankruptcy. .
- An Altman Z-score close to 1.8 suggests a company might be headed for bankruptcy, while a score closer to 3 suggests a company is in solid financial positioning.
- The formula takes into account profitability, leverage, liquidity, solvency, and activity ratios. .
Meaning of Altman z-score & Altman z-score Definition