X3 = earnings before interest and taxes / total assets X4 = market value of equity / total liabilities X5 = sales / total assets Z-score bankruptcy model: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1X5 Zones of discrimination: Z > 2.99 – "safe" zone 1.81 < Z < 2.99 – "grey" zone Z < 1.81 – "distress" zone Z-score estimated for non-manufacturers and emerging markets X1 = (current assets − current liabilities) / total assets X2 = retained earnings / total assets X3 = earnings before interest and taxes / total assets X4 = book value of equity / total liabilities Z-score bankruptcy model (non-manufacturers): Z = 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4 Z-score bankruptcy model (emerging markets): Z = 3.25 + 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4 Zones of discrimination: Z > 2.6 – "safe" zone 1.1 < Z < 2.6 – "grey" zone Z < 1.1 – "distress" zone Examples See also Standard score Z-test Z-factor Ohlson O-score References The Use of Credit Scoring Modules and the Importance of a Credit Culture by Dr. Edward I Altman, Stern School of Business, New York University. Further reading Caouette, John B; Edward I Altman, Paul Narayanan (1998). Managing Credit Risk – the Next Great Financial Challenge, John Wiley & Sons: New York. External links Altman Z-score calculator Financial ratios Bankruptcy Credit risk Credit scoring 1968 introductions