Altman Z Score Calculator Model

The Altman Z Score calculator model takes five key accounting ratios for a business, weights them according to an industry type, and combines them into a single score (the Z score) to give an indication of the financial health of a business.

Generally, the lower the Z score the greater the chance of failure.

In order to make more use of the Z score, Altman established cut off points or boundaries to enable a business to make predictions. These boundaries classify the business into a safe zone, grey zone, or distress zone.

altman z score calculator v 1.0

Altman Z Score Ratios

The five key accounting ratios used in the Altman Z score calculator are:
  1. T1 – Net current assets / Total Assets
  2. T2 – Retained earnings / Total Assets
  3. T3 – Earnings before interest and tax (EBIT) / Total assets
  4. T4 – Market value of equity / Total liabilities
  5. T5 – Sales / Total assets

Having calculated the ratios, each one is weighted using preset values according to its industry type and then added together to produce the Altman Z Score.

Altman Z Score Industry Types and Boundaries

The industry types fall into three categories:

  1. Public manufacturing business
  2. Private manufacturing business
  3. Non manufacturing business

The weighting of each ratio is as follows.

Public Companies

For a public manufacturing business the Altman Z score formula is set out below:

Altman Z Score = 1.200 T1 + 1.400 T2 + 3.300 T3 + 0.600 T4 + 0.999 T5
The boundaries established by Altman are as follows.
  1. Z score > 2.99 – Safe zone
  2. 1.80 < Z score < 2.99 Grey zone
  3. Z score < 1.80 Distress zone

Private Companies

For a private manufacturing business the Altman Z score formula is set out below:

Altman Z Score = 0.717 T1 + 0.847 T2 + 3.107 T3 + 0.420 T4 + 0.998 T5

The boundaries established by Altman are as follows.

  1. Z score > 2.9 – Safe zone
  2. 1.23 < Z score < 2.9 Grey zone
  3. Z score < 1.23 Distress zone

Non-Manufacturing Companies

For a non-manufacturing business the Altman Z score formula is set out below:

Altman Z Score = 6.56 T1 + 3.26 T2 + 6.72 T3 + 1.05 T4

The boundaries established by Altman are as follows.

  1. Z score > 2.6 – Safe zone
  2. 1.1 < Z score < 2.6 Grey zone
  3. Z score < 1.1 Distress zone

Using the Altman Z Score Calculator

The Excel Altman Z score calculator, available for download below, calculates the Z score by entering details relating to the balance sheet and income statement of the business as follows:

  • Select the type of business. Select whether the business is a public (quoted) manufacturing business, a private manufacturing business, or a non manufacturing business.
  • Enter the balance sheet items. Using the balance sheet of the business, enter values for current assets, total assets, current liabilities, total liabilities, market value of equity, and retained earnings.
    For a private business where the shares are not quoted, use the book value of the equity instead of market value.
  • Enter the income statement items. Using the income statement, enter values for revenue, and earnings before interest and tax (EBIT) (enter a negative figure if this is a loss).
  • Altman Z score calculation. The Altman Z score calculator calculates the Z score and based on that score, indicates the Z score zone the business is currently in.

Altman Z Score Calculator Download

The Altman Z score spreadsheet is available for download in Excel format by following the link below.

Notes and major health warnings
Users use this Altman Z score model at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of an Edward I Altman z-score tool that you might use.  It is purely illustrative.  This is not intended to reflect general standards or targets for any particular company or sector. If you do spot a mistake in the Altman Z score template, please let us know and we will try to fix it.
Last modified July 16th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

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