Altman Z-score: what it means and how to read it
What is Altman Z-score?
A formula from the 1960s that estimates the risk of a company running into financial distress in the next couple of years.
The Altman Z-score, published by Edward Altman in 1968, combines five balance-sheet and profit ratios into one number that estimates how close a company is to financial distress. It weighs liquidity, accumulated profits, operating earning power, the cushion of market value over debts and how hard the assets are worked.
It was fitted on manufacturing companies and remains most reliable for them. It gives an early warning: scores tend to fall for a year or two before a company gets into serious trouble.
How it is calculated
A worked example
Why does Altman Z-score matter?
An early warning on financial stress.
What is a good Altman Z-score?
3 or more is the safe zone, below 1.8 the distress zone. It was built for manufacturers and is less reliable for banks.
Above 3 is read as safe, between 1.8 and 3 as a grey zone that needs a closer look, and below 1.8 as a sign of real risk of distress within about two years. It is not valid for banks, lenders and insurers, or for asset-light service companies the original model never covered.
Reading scale
What are the common mistakes with Altman Z-score?
What is a typical Altman Z-score in India today?
The median across the 3924 listed companies that report it, as of 12 Oct 2026. Half sit above each figure and half below.