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METHODS
ALTMAN MODEL
Methods » Finance methods » Altman model
The Altman model, based upon financial ratios, is designed to estimate the company´s future financial standing, namely delivering a timely prediction of a financial shortcoming or an eventual bankruptcy. The model was published in 1968 by Edward Altman, and became one of the fundamental models for the company´s financial analysis.
The Altman model for corporations is defined as follows:
Z = 1,2a + 1,4b + 3,3c + 0,6d + 1,0e
a = working capital / total assets
b = retained earnings / total assets; retained earnings =
after-tax earnings – dividends
c = earnings before interest and taxes / total assets
d = market value of equity / book value of total
liabilities
e = sales / total sales
Scoring for corporations:
Z > 2,99 financially safe company
Z = 1,81 – 2,99 company with nondescript financial
standing, grey zone
Z < 1,81 company in distress, heading for
bankruptcy
If you wish to know your company´s real financial condition, have us elaborate Financial analysis here.
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Discussion to article
dwi setyowati - rumus z
tanya pada rumus Z=1,2 a + 1,4 b + 3,3 c + d pada angkanya (1,2 dst) itu dari mana?
Posted 25. 05. 2011