Altman Z Score

This is a discussion on Altman Z Score within the Economic & Fundamental Analysis forums, part of the Methods category; What is the individual criteria for the different ratios? How to scan the LSE for bearish companies teetering on bankruptcy? ...

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Old Sep 20, 2013, 5:42am   #1
Joined Aug 2012
Altman Z Score

What is the individual criteria for the different ratios? How to scan the LSE for bearish companies teetering on bankruptcy?

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mrfixituk is offline   Reply With Quote
Old Sep 25, 2013, 2:12am   #2
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Originally Posted by mrfixituk View Post
What is the individual criteria for the different ratios? How to scan the LSE for bearish companies teetering on bankruptcy?

Thanks
Keep in mind, there are two different Altman Z-Scores - one for manufacturers and the other is for non-manufacturers.

For manufacturers:

Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 0.999T5.


T1 = Working Capital / Total Assets. Measures liquid assets in relation to the size of the company.
T2 = Retained Earnings / Total Assets. Measures profitability that reflects the company's age and earning power.
T3 = Earnings Before Interest and Taxes / Total Assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability.
T4 = Market Value of Equity / Book Value of Total Liabilities. Adds market dimension that can show up security price fluctuation as a possible red flag.
T5 = Sales/ Total Assets. Standard measure for total asset turnover (varies greatly from industry to industry).

So what's a good score? 2.6 or above. What's a scary score? 1.1 and below.

For Non-Manufacturers:

Z'' = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4

A good score is over 3.75 and a scary score is under 1.75.

Best way to extract these would be to find the stocks and extract financials from ADVFN.com, Barchart.com, Business Week Stock Screener.
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