Altman Z-Score: The Bankruptcy Predictor That Still Works 60 Years Later

A Remarkably Durable Model

Edward Altman published the Z-Score in 1968 from a discriminant analysis of 66 manufacturers. The model combines five balance-sheet and earnings ratios — working capital, retained earnings, EBIT, market equity, and sales — each scaled by total assets and weighted. The headline result is a score where Z > 2.99 = safe, 1.81 < Z < 2.99 = grey zone, Z < 1.81 = distressed. In 60 years of out-of-sample testing, the model predicts bankruptcy within two years in roughly 72% of cases at the distress threshold. That's not perfect, but it's well ahead of credit ratings on a cost-per-prediction basis.

What the Altman Z-Score Card Shows

The Altman Z-Score card plots the issuer's rolling Z-Score for the trailing 20 quarters alongside the 1.81 and 2.99 threshold lines. Each input component is shown as a stacked contribution bar so you can see *which* ratio is driving the score — a company can cross into the grey zone because of working-capital deterioration (cyclical, recoverable) or because of collapsing retained earnings (structural, rarely recoverable), and the distinction matters a lot. A modified Z" variant for non-manufacturers is used automatically based on the issuer's GIC sector.

Reading the Signal

Two things separate useful Z-Score interpretation from naive interpretation. First, watch the trend, not the level: a 2.5 trending down for 4 quarters is a louder signal than a stable 1.9. Second, check the driver: Z-Score falling because of a market-cap collapse (ratio 4, market equity / liabilities) is often a self-fulfilling prophecy worth fading; Z-Score falling because of burned retained earnings (ratio 2) or EBIT collapse (ratio 3) is harder to reverse. Pair with the Piotroski F-Score for a complementary quality read — F-Score catches operational-quality changes that Z-Score can miss.

Where It Fits

Z-Score is a survival filter, not a buy signal. Combine with Leverage for debt-structure context, Cashflow for liquidity runway, and Accruals Quality for earnings-quality context. A distressed Z with deteriorating accruals is one of the cleanest short setups on public markets.

Open the Altman Z-Score card → /app/stocks/AAPL/fundamentals