Z score
The Z score indicates the probability of a company entering bankruptcy within the next two years.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Tesla and Alphabet announce results – should you invest in Big Tech?
How profitable are the world’s biggest tech companies? We share the latest so far this earnings season.
By Katie Williams Published
-
How working part-time in retirement could boost your pension by £87,000
Easing into retirement by working a few days a week could add thousands to your pension pot. We crunch the figures to see how working part-time can boost your pension po
By Ruth Emery Published