Model 2. For privately-held companies Z' = 0.717X, + 0.847X, + 3.107X, + 0.420X, + 0.998X. X. = Net Working Capital/Total Assets X. = Retained Earnings/Total Assets X. = EBIT/Total Assets X, = Book Value of All Assets/Book Value of Total Liabilities X: = Sales/Total Assets . If Z' Bankruptcy is predicted within one year If 1.23 Financial distress, possible bankruptcy . If Z' > 2.90 => No Financial distress predicted Note: The predictive ability of the model was even better when using a cutoff point of 1.81. References: 1) Altman, E. I.. "Predicting Financial Distress of Companies: Revisiting the Z-Score and ZETA" Models" (July 2000) 2) Also see chap. 21 in Fabozzi, F. J., Bond Markets. Analysis and Strategies, Be, for other and more sophisticated credit risk models