PREDICTING A FIRM'S FINANCIAL DISTRESS Altman's Z-Score Methodology ALTMAN'S Z-Score Models for Predicting a Firms' Financial Distress Model 1 (Original): For publicly-held companies Z = 1.2X, + 1.4X, + 3.3X, + 0.6X, + 1X; X, = Net Working Capital/Total Assets X. = Retained Earnings/Total Assets X. = EBIT/Total Assets X. = Market Value of All Assets/Book Value of Total Liabilities X: = Sales/Total Assets Z* = Cutoff point = 2.675 . If Z Firm can be reasonably be expected to experience severe financial distress, and possibly bankruptcy, within the next year. . If Z > 2.675 => No financial distress predicted. . If Z Firm can be reasonably be expected to experience severe financial distress, and possibly bankruptcy, within one year. If 1.81 Financial distress and possible bankruptcy. . If Z > 2.675 => No financial distress predicted. Note: Model was found 80-90% accurate when using a cutoff point of 2.675