Contrary to what the name may suggest, the Altman-Z score is definitely not a new formula. It was developed in 1968 by Edward I. Altman on the basis of scientific research, looking for a model to predict whether a company may or may not go bankrupt. It is therefore a calculation model that allows to determine the creditworthiness of a company.
For this purpose multiple ratios are used in the formula, such as:
Not all variables are equally important and therefore they are each assigned a different weight. The sum of all ratios yields a score. The higher the score, the smaller the chance the company will go bankrupt.
A score of 1.8 or less is a serious indication of a creditworthiness problem, anything over 3 gets the status ‘healthy’. A score between 1.81 and 2.99 is defined as ‘neutral’.
As with many other ratios and formulas, one has to deal with too fast or too general conclusions. A few points must be taken into account when interpreting the score:
Meanwhile, there are some variations on the original Altman-Z score in circulation, such as specific derivative scores for private companies or for public service companies. The filter in our screener is the original formula that is still used for public industrial companies.
The Altman-Z score in our stockscreener!
Link 1 – This list shows a selection of US shares with a minimum price of $ 10 and an average trading volume of at least 1 million shares(the average is measured over the last 50 trading days), with the Altman-Z score higher than 2.99. These filter settings select US companies that have very little chance of bankruptcy in a short period of time.
Link 2 – This list has the same filters as the above list, but instead of using an Altman-Z score higher than 2.99, a score of less than 1.81 is selected in this case. Thus, we get US companies whose creditworthiness can be seriously challenged.
The ChartMill Team