Assess the financial health and bankruptcy risk of a manufacturing company using the public company model.
Calculated Altman Z-Score:
0.00
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Understanding the Altman Z-Score
Developed by Edward Altman in 1968, the Altman Z-Score is a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy within two years. It utilizes five financial ratios derived from the balance sheet and income statement.
The Formula (Public Manufacturing Model)
Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
A: Working Capital / Total Assets (Measures liquidity)
B: Retained Earnings / Total Assets (Measures cumulative profitability/leverage)
C: EBIT / Total Assets (Measures productivity of assets)
D: Market Value of Equity / Total Liabilities (Measures solvency)
E: Sales / Total Assets (Measures asset turnover)
Score Interpretation
Z > 2.99
Safe Zone: Low probability of bankruptcy in the near term.
1.81 < Z < 2.99
Grey Zone: Moderate risk; company should be monitored closely.
Z < 1.81
Distress Zone: High probability of bankruptcy within 24 months.
Practical Example
Imagine a company with the following financials:
Total Assets: 10,000,000
Working Capital: 2,000,000 (A = 0.2)
Retained Earnings: 3,000,000 (B = 0.3)
EBIT: 1,500,000 (C = 0.15)
Market Cap: 12,000,000
Total Liabilities: 6,000,000 (D = 2.0)
Net Sales: 15,000,000 (E = 1.5)
Calculation: (1.2 * 0.2) + (1.4 * 0.3) + (3.3 * 0.15) + (0.6 * 2.0) + (1.0 * 1.5) = 3.855. This company is firmly in the "Safe Zone".
function calculateZScore() {
var ta = parseFloat(document.getElementById('totalAssets').value);
var tl = parseFloat(document.getElementById('totalLiabilities').value);
var ca = parseFloat(document.getElementById('currentAssets').value);
var cl = parseFloat(document.getElementById('currentLiabilities').value);
var re = parseFloat(document.getElementById('retainedEarnings').value);
var ebit = parseFloat(document.getElementById('ebit').value);
var mc = parseFloat(document.getElementById('marketCap').value);
var sales = parseFloat(document.getElementById('netSales').value);
var resultDiv = document.getElementById('zResult');
var scoreDisplay = document.getElementById('zScoreDisplay');
var statusDisplay = document.getElementById('zStatus');
var interpDisplay = document.getElementById('zInterpretation');
if (isNaN(ta) || isNaN(tl) || isNaN(ca) || isNaN(cl) || isNaN(re) || isNaN(ebit) || isNaN(mc) || isNaN(sales) || ta === 0 || tl === 0) {
alert("Please enter valid positive numbers. Total Assets and Total Liabilities cannot be zero.");
return;
}
var wc = ca – cl;
var A = wc / ta;
var B = re / ta;
var C = ebit / ta;
var D = mc / tl;
var E = sales / ta;
var zScore = (1.2 * A) + (1.4 * B) + (3.3 * C) + (0.6 * D) + (1.0 * E);
var roundedScore = zScore.toFixed(3);
scoreDisplay.innerText = roundedScore;
resultDiv.style.display = 'block';
if (zScore >= 3.0) {
resultDiv.style.backgroundColor = '#e8f5e9';
resultDiv.style.color = '#2e7d32';
statusDisplay.innerText = "Safe Zone";
interpDisplay.innerText = "The company is financially sound with a very low risk of bankruptcy in the next two years.";
} else if (zScore > 1.8) {
resultDiv.style.backgroundColor = '#fffde7';
resultDiv.style.color = '#f57f17';
statusDisplay.innerText = "Grey Zone";
interpDisplay.innerText = "The company shows moderate financial distress risk. Caution is advised for investors.";
} else {
resultDiv.style.backgroundColor = '#ffebee';
resultDiv.style.color = '#c62828';
statusDisplay.innerText = "Distress Zone";
interpDisplay.innerText = "The company has a high probability of entering bankruptcy within the next two years.";
}
}