altman z score
What it checks
A 5-ratio score that flags bankruptcy risk. High score = safe (long); low score = distressed (short). The market-cap version of the original 1968 formula.
Mechanism
Altman's Z-score combines five accounting ratios (working-capital/TA, retained-earnings/TA, EBIT/TA, market-cap-equity/total-liab, sales/TA) into a discriminant score that separates safe (Z>2.99) from distressed (Z<1.81) firms. The market-cap-equity X4 variant (vs Altman's original book-equity) is a stronger forward predictor and is the modern usage. Hilscher-Wilson 2017 J. Banking confirm the score still discriminates default risk in 2000s data.
Signal rule
Quarterly Z-score; long Z>2.99 + 60d uptrend, short Z<1.81 + 60d downtrend (or stricter 3.5/1.0 cuts).
Data dependencies
fundamentals_quarterlyQuarterly fundamentals (income, balance, cash-flow) from FMP + SEC.
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
Expected edge
- Paper alpha
- 3-5% ann. long-safe / short-distress
- Paper window
- 1968-present (Hilscher-Wilson 2017 OOS)
Hilscher-Wilson 2017: 3-5% ann. long-safe / short-distress spread post-2000.
Example tickers where this is likely to fire
Illustrative only — the signal fires based on the live data, not a fixed list.
Related families
ohlson o scoreQualityOhlson 1980 JAR built a 9-variable logit-style index orthogonal to Altman Z. Out-of-sample beats Z for 1-2 year bankruptcy prediction. Hilscher-Wilson 2017 confirm Z and O are both alive in 2000s data and diversify each other. Variables: size, leverage, working capital, current ratio, ROA, CFO/total-liab, two-year-negative-NI flag, technical-insolvency flag, Δ NI scaled.
beneish m score shortQualityBeneish (1999, FAJ) built an 8-variable logistic-style index that flags firms likely to be manipulating earnings (DSRI, GMI, AQI, SGI, DEPI, SGAI, LVGI, TATA). M > -1.78 → manipulator suspect. Beneish-Lee-Nichols 2013 FAJ confirm OOS the score predicts both SEC enforcement actions and forward underperformance. Used inside AQR's quality-minus-junk composite. Short-bias only — long-side from very-negative M is historically noisy.
piotroski f scoreQualityPiotroski (2000, JAR) showed that a 9-signal accounting score distinguishes winners from losers within the high-B/M (value) universe. Long F>=7 / avoid F<=2 added ~7.5% annualized over 1976-1996 inside the value tertile, and ~23% in the highest B/M decile. Modern replications through 2021 confirm the score still differentiates forward returns even without the value gate; works especially well in uncertainty regimes when low-quality distressed names are marked down faster.
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