Altman Z-score
The Altman Z-score combines specified financial ratios using model coefficients to provide an indicator of corporate distress risk. Different versions use different variables, coefficients and populations, so apply the formula and interpretation given rather than mixing them. It can help screen a company for further analysis, but depends on reliable financial data and whether the model is suitable for the entity, industry and economic conditions. A score is a warning or statistical indicator, not a certain prediction of insolvency. This corporate model is distinct from a statistical standard score.
Worked example
An analyst calculates a score under the stated model and finds it lies in the model's caution range. The analyst investigates liquidity, cash-flow forecasts and recent events rather than declaring the company certain to fail.
Common mistake
Confusing Altman's corporate-failure Z-score with the statistical z-score (observation minus mean divided by standard deviation), or applying one model's thresholds to another version.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |