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Glossary
Altman Z-Score
Essential — core valuation theory
What it measures
A bankruptcy-risk score. Above 3 safe, 1.8–3 grey zone, below 1.8 distress. Higher is safer. Not shown for banks and other financial institutions — the formula was calibrated on manufacturers and scores every financial near zero however sound it is.
Formula
1.2·(NWC/Assets) + 1.4·(Retained Earnings/Assets) + 3.3·(EBIT/Assets) + 0.6·(MktCap/Liabilities) + 1.0·(Revenue/Assets)Benchmark
> 3 safe · 1.8-3 grey · < 1.8 distress
Related metrics
Source
Altman, Journal of Finance (1968)