Altman Z Score
Altman Z Score is a model created by Edward Altman used to predict business stability. This model combines five different financial ratios to come up with a score which can predict bankruptcy. The Z score can be used to identify stocks which have high probability of bankruptcy. It can also be used to identify investment opportunities in companies with high debt/equity ratio which are beaten down but not likely to go bankrupt. While companies with a Z score above 3 are considered to be safe, a Z score less than 3 are considered to be risky with a high probability of bankruptcy. Altman found that 72% of companies that were predicted to head to bankruptcy within two years actually did. Back
