What is a ‘Z-Score’
A Z-score is a numerical measurement of a value’s relationship to the mean in a group of values. If a Z-score is 0, it represents the score is identical to the mean score.
Z-scores also reveal to statisticians and traders if a score is typical for a specified data set or if it is atypical. In addition to this, Z-scores also make it possible for analysts to adapt scores from various data sets to make scores that can be compared to one another accurately. Usability testing is one example of a real-life application of Z-scores.
The Altman Z-Score Formula
The Altman Z-score is the output of a credit-strength test that helps gauge the likelihood of bankruptcy for a publicly traded manufacturing company. The Z-score is based on five key financial ratios that can be found and calculated from a company’s annual 10K report. The calculation used to determine the Altman Z-score is as follows:
Altman Z-Score Plus
Altman developed and released the Altman Z-Score Plus in 2012. This formula is used to evaluate both public and private companies and can be used for non-manufacturing companies as well as manufacturing companies. The Z-Score Plus is suitable for companies in the United States as well as companies outside of the United States.
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