How this site computes the Altman Z-Score
Last updated October 22, 2026. Thresholds below are the ones the code uses today.
The Altman Z″-Score is a bankruptcy-risk score built from four ratios on a company's latest 10-K. This site uses Edward Altman's 1995 version for non-manufacturers: above 2.6 is the safe zone, 1.1 to 2.6 the grey zone and below 1.1 the distress zone. It is a statistical warning that has gone with financial distress within about two years, not a prediction about any one company.
What is the formula?
Z″ = 6.56 × X1 + 3.26 × X2 + 6.72 × X3 + 1.05 × X4
| Ratio | Definition | What it captures |
|---|---|---|
| X1 | Working capital ÷ total assets | Liquidity: can the company meet near-term bills? |
| X2 | Retained earnings ÷ total assets | Cumulative profitability, and how old and established the company is |
| X3 | EBIT ÷ total assets | How productively the assets earn operating profit |
| X4 | Book value of equity ÷ total liabilities | The cushion between what the company owns and what it owes |
The weights are Altman's own. They are not tuned by this site.
What do the zones mean?
| Zone | Z″-Score | Reading |
|---|---|---|
| Safe | Above 2.6 | Financially healthy on these four ratios |
| Grey | 1.1 to 2.6 | Mixed: worth a closer look, not distress |
| Distress | Below 1.1 | Balance sheet resembles companies that later failed |
The Altman Z Screener sorts riskiest first, and the stock card and the Portfolio Doctor show the same zone.
Why this version and not the original Z-Score?
Altman's 1968 model uses a sales-to-assets ratio and the market value of equity, and was built for US manufacturers. The 1995 revision drops the sales ratio, which varies a lot by industry, and uses book equity, so it fits non-manufacturers, private companies and emerging markets. That makes it the better fit for a mixed universe of large US stocks.
Where does the data come from, and what is left out?
Balance-sheet and income-statement line items come as filed from each company's 10-K through the SEC's company-facts data on SEC EDGAR, for every stock this site tracks, and are refreshed weekly. Sector comes from the site's DCF inputs.
Banks, insurers, financial-services companies, REITs and utilities are left out. A bank's current liabilities are deposits, which do not mean what they mean for an industrial company, and REITs and utilities are leveraged by design, so the model would flag healthy businesses for reasons it was never built to judge.
What are the limits?
The score uses book values from the latest annual filing, so it lags a fast-moving company and can miss trouble that arrived after the 10-K. A grey zone score is not distress, and a safe score is not a guarantee. The model is statistical and describes how a balance sheet compares with those of past failures. It does not know about covenants, refinancing walls or a pending lawsuit.
Frequently asked questions
What is a good Altman Z-Score?
On the Z″ version this site uses, above 2.6 is the safe zone. Between 1.1 and 2.6 is the grey zone, and below 1.1 is the distress zone. Compare a score with the company's own history and its industry, not only with the thresholds.
Can a healthy company be in the grey zone?
Yes. Companies that lean on debt to buy back stock or fund growth can score lower while still earning well. A grey score is a prompt to read the balance sheet, not a verdict.
Why are banks, insurers and REITs excluded?
Their balance sheets are structured differently: deposits and policy liabilities are not working-capital items, and REITs and utilities carry high leverage by design. The model was not built for them, so this site does not score them.