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Al Z Score Calculator

Al Z-score Equation:

\[ Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E \]

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1. What is the Al Z-score?

The Al Z-score (Altman variant) is a financial metric used to predict the probability of a company going bankrupt within two years. It combines five different financial ratios to produce a single score that indicates financial health.

2. How Does the Calculator Work?

The calculator uses the Altman Z-score equation:

\[ Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E \]

Where:

Explanation: The equation combines liquidity, profitability, leverage, solvency, and activity ratios to assess financial distress risk.

3. Importance of Z-score Calculation

Details: The Z-score helps investors, creditors, and analysts assess a company's financial stability and bankruptcy risk. Scores below 1.8 suggest high risk, while scores above 3.0 indicate financial stability.

4. Using the Calculator

Tips: Enter the five financial ratios (A through E) as dimensionless values. The calculator will compute the Z-score which can be interpreted as follows:

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between the original and Altman variant Z-score?
A: The original Z-score was developed for manufacturing firms, while the Altman variant is adapted for private companies and non-manufacturers.

Q2: How accurate is the Z-score in predicting bankruptcy?
A: The model has about 72-80% accuracy in predicting bankruptcy one year before the event, and slightly less for two years before.

Q3: Can the Z-score be used for all types of companies?
A: While applicable to most, it works best for manufacturing firms and may need adjustments for financial institutions or service companies.

Q4: What are the limitations of the Z-score model?
A: It doesn't account for macroeconomic factors, industry-specific risks, or qualitative factors like management quality.

Q5: How often should Z-scores be calculated?
A: For monitoring purposes, quarterly calculation with financial statements is recommended.

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