What is the Altman-Z score?

Welcome to our short [What is the Altman-Z score?] video where we will be discussing the Altman-Z score. In this short [What is the Altman-Z score?] video , we will explore the origins of this powerful financial tool, how it works, and why it matters for both investors and companies.Show more

The Altman-Z score, developed by Edward Altman in the 1960s, is a formula that uses five financial ratios to predict the likelihood of a company going bankrupt within the next two years. These ratios include profitability, liquidity, leverage, solvency, and efficiency, and by plugging them into the formula, a score between 0 and 10 is generated.

A score above 3 indicates a low risk of bankruptcy, while a score below 1.8 suggests a high risk. This makes the Altman-Z score a valuable tool for investors and creditors to assess the financial health of a company before making any decisions.

What's even more important is that the Altman-Z score can serve as an early warning sign for companies to take action and improve their financials before it's too late. This makes it a crucial tool for companies to evaluate their financial standing and potentially make necessary changes to avoid bankruptcy.

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