The document discusses the Altman Z-score formula, which was published in 1968 and can be used to predict bankruptcy. The formula uses five financial ratios to calculate a score. A score below 1.8 indicates likely bankruptcy, while a score between 1.8-3 means bankruptcy is possible and above 3 means the company is financially stable. The formula is: 1.2A+1.4B+3.3C+0.6D+1.0E. It requires data from a company's balance sheet and income statement. While the Z-score can help determine bankruptcy risk, it does not work for new companies and does not directly consider cash flow.

1. prepare by.
RAVI DHIMAN
SUBASH
GAURAV
ANKUSH
ANKUR

2. The Z-score formula for predicting bankruptcy
was published in 1968 by EDWARD ALTMAN ,
who was , at the time ,an Assistant Professor of
Finance at NewYork University.
Z score refers to how many standard deviations a
particular data point is from the mean of the data.
Z –scores are useful when comparing data points
from different sets of data

3. A Z score of company below 1.8 is probably
headed to bankruptcy
A z score of 1.8 to 3 of a company might headed
to bankruptcy.
Companies with z score above 3 are financial
stable

4. The formula is
1.2A+1.4B+3.3C+0.6D+1.0E
Where, A. represents Working capital / total
assets ratio
B. represents retained earning / total assets ratio
C .represents EBIT / total assets ratio
D . represents the market value of equity / total
liabilities
E. Represents sales / total assets ratio
ALTMAN Z SCORE FORMULA

5. To calculate Z score , the first step to identify the seven
items listed on the Balance Sheet and Income Statement
Used in the claculations
BALANCE SHEET INCOME STATEMENT
1 .Working capital 5. Sales
2.Total assets 6.EBIT
3.Total liabilities 7. Retained earning
4.Market capitalization

6. ALTMAN Z –SCORE CALCULATION

7. Investors use z score to determine if a company is
approaching bankruptcy or whether they should buy
or sell a particular stock
However , Z score do not work for new companies ,As
their low earning will always render a low z score
In Addition , Z score does not directly account for
cash flow
A company may have high Z Score , but be unable to
pay its debt , and thus have to declare bankruptcy.

8. Thank you