Altman Z-score

Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5.

X1 = ratio of working capital to total assets. Measures liquid assets in relation to the size of the company.
X2 = ratio of retained earnings to total assets. Measures profitability that reflects the company's age and earning power.
X3 = ratio of earnings before interest and taxes to total assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability.
X4 = ratio of market value of equity to book value of total liabilities. Adds market dimension that can show up security price fluctuation as a possible red flag.
X5 = ratio of sales to total assets. Standard measure for total asset turnover (varies greatly from industry to industry).

Related[edit]