Z score

Devised in the 1960s by Edward Altman, a Z score indicates the probability of a company entering bankruptcy within the next two years. The higher the Z score, the lower the probability of bankruptcy. A score above three indicates that bankruptcy is unlikely; a score below 1.8 indicates that bankruptcy is possible.

It works by analysing the financial strength of a company using five balance-sheet and profit-and-loss-account measures – profit to total assets, retained earnings to total assets, working capital to total assets, sales to total assets and market capitalisation to total assets. These are then weighted to reflect their relative importance before being combined into a single figure, the Z score.

MoneyWeek magazine

Latest issue:

Magazine cover
Why you should worry about Greece

...and how to protect your wealth

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

From ADRs to Z scores – all the terms you wish you understood, but were too embarrassed to ask about.

Gervais Williams: if you want real dividend growth, buy small-cap stocks

Merryn Somerset Webb interviews small-cap stock expert Gervais Williams about how penny shares outperform blue chips 'again and again'.


Which investment platform is the right one for you?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from, with varying fees and charges. Find out which is best for you.


3 July 1767: Pitcairn Island is discovered


Pitcairn Island was spotted on this day in 1767 by 15-year old midshipman Robert Pitcairn, serving on HMS Swallow. It was marked wrongly on the ship's chart, and was promptly lost again.


Anatomy of a Grexit: how Greece would go about leaving the euro

Jonathan Loynes and Jennifer McKeown, economists at Capital Economics, look at the key issues and challenges of a Grexit, how it might be best managed, and set out a timetable for change.