Altman’s Z score: It was published by Edward Altman in 1968.It helps investors to analyse the financial strength of a company and measure the bankruptcy of a company. There are three zones in Altman’s z-score: · Safe zone · Grey zone · Danger zone Safe Zone: If z-score is more than 2.99 that company is comes under safe zone. Grey Zone: If z-score is between 1.81 and 2.99 then that company comes under grey zone. Danger Zone: If z-score is less than 1.81 then that company is in danger zone. Formula: 1.2*(working capital/Total Assets) +1.4*(Retained Earnings /Total Assets) +3.3*(Earnings before interest and tax/Total Assets) +1.6*(The equity market value/Total Assets) +0.999*(Total Sales/Total Assets) With the help of this formula investors can predict the bankruptcy of a company within 2 years. It acts as a tool for making investment decision. Example: Find out the Altman Z-score with the help of following information of XYZ Company: Tot
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