Altman index

1. Christian Maupetit1
Altman's Bankruptcy Index
the formula
Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5
How To Calculate A Z-Score
http://www.investopedia.com/articles/fundamental/04/021104.asp

2. Christian Maupetit2
Altman's Bankruptcy Index
the components
• x1 = working capital/total assets
• x2 = retained earnings/total assets
• x3 = earnings before interest & taxes/total assets
• x4 = book value of equity/total liabilities
• x5 = sales/total assets

3. Christian Maupetit3
General index
• x1 = working capital/total assets
a measure of net liquid assets of firm relative to total
capitalization
Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5

4. Christian Maupetit4
General index
• x2 = retained earnings/total assets
a measure of cumulative profitability over time
Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5

5. Christian Maupetit5
General index
• x3 = earnings before interest & taxes /total assets
measures the profit-generating power of assets
Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5

6. Christian Maupetit6
General index
• x4 = book value of equity/total liabilities
a measure of what size losses of a company can incur before
creating insolvency (negative net worth)
Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5

7. Christian Maupetit7
General index
• x5 = sales/total assets
a measure of the revenue productivity of the firm’s assets
Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5

8. Christian Maupetit8
General index
Index above 3 is safe,
between 1.8 and 3 is in the “gray zone”,
below 1.8 the firm is in the “bankruptcy
zone”

9. Christian Maupetit9
General index
bankruptcy zone gray zone safe zone
1.8 3.00

10. Christian Maupetit10
General index
Example : Company A
Financial statements :
- income statement
- balance sheet

11. Christian Maupetit11
General index (FY)
x1 (2 823 022 -2 564 066)/ 8 247 188 = 3.14%
x2 3 878 988/8 247 188 = 47.03%
x3 1 155 809/ 8 247 188 = 14%
x4 2 472 869/5 774 319 = 42.83%
x5 8 086 794/8 247 188 = 98.06%
z = (0.03768+0.65842+0.462+0.25698+0.9806) = 2.395768
Z = 2.4

12. Christian Maupetit12
General index
Example : the Company A
1.8 3.00

13. Christian Maupetit13
General index (FY-1)
x1 (2 292 530 -1 692 362)/ 6 381 146 = 9.39%
x2 3 633 385/6 381146 = 56.93%
x3 1 068 343/6 381 146 = 16.74%
x4 2 338 551/4 042 595 = 57.84%
x5 7 046 738/6 381 146 = 110.4.%
z = (0.11268+0.79702+0.55242+0.34704+1.104) = 2.91316
Z = 2.9

14. Christian Maupetit14
General index
Example : the Company A (FY-1)
1.8 3.00