Bankruptcy Risk (Altman Z-Score)

The Bankruptcy Risk Meter gives a visual representation of how likely a company is to head into serious financial difficulty within the next two years.

The meter is derived from the Altman Z-Score, a statistical bankruptcy indicator generated from a set of balance sheet ratios. If the meter is in the safe zone (*indicating a Z-Score greater than 3*) the financial health of the company is good, whereas a company is in serious trouble if the meter is in the distress zone (*indicating a Z-Score less than 1.8*). Tests have shown that the Distress Zone is 80-90% accurate in predicting bankruptcy.

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The Altman score is based on multi-variate analysis. However, the following tests give an indication for the key factors driving the Z-score (by assessing whether Cranswick is closer to the average value for bankrupt vs. non-bankrupt firms):

Are liquid assets a significant proportion of the assets?
Do reinvested earnings make up a significant portion of the assets?
Are the assets relatively productive in terms of earnings?
Does firm value compare favourably to its liabilities?
Are the assets relatively productive in terms of sales?

For further information on how the Z-Score is calculated click here.

For a list of the stocks with the worst Altman Z Scores click here.