Altman · Z-Score bankruptcy prediction
Uses a weighted discriminant of five financial ratios to estimate the probability of financial distress within about two years, adding a bankruptcy-risk veto layer to deep-value conclusions.
- Guide level
- Practical
- Output
- Screening and validation
Core formula
Z = 1.2·X₁ + 1.4·X₂ + 3.3·X₃ + 0.6·X₄ + 1.0·X₅ (working capital, retained earnings, EBIT, market equity, sales — all over total assets or liabilities)How to interpret it
Uses a weighted discriminant of five financial ratios to estimate the probability of financial distress within about two years, adding a bankruptcy-risk veto layer to deep-value conclusions.
The output should be read as a scenario or decision aid, not as a guaranteed price target. Compare it with at least one method based on different economic assumptions.
Practical workflow
- Normalize the latest public financial and operating data.
- Choose assumptions that match the company's economics and accounting structure.
- Calculate conservative, base and optimistic cases where the method permits.
- Compare the result with market pricing and an independent valuation method.
- Document the assumptions that drive the largest changes in value.
Key limitation
Not applicable to financials, biased low for asset-light firms, and a zone signal rather than a precise probability.
How Stockinsky uses it
Stockinsky uses this framework only when the company type and available data support it. Professional valuations expose assumptions, sources and warnings instead of presenting false precision.