Business Bankruptcy Risk Calculator: How Close Is Your Business to Distress?
How close is your business to bankruptcy?
Is Your Business at Risk of Bankruptcy?
Enter your balance sheet figures below. The Z'-Score updates live as you type — no Calculate button needed.
Balance Sheet & Income Inputs
Uses the Altman Z'-Score model for private companies (1995 revision using book equity). All values in dollars.
e.g. cash, A/R, inventory
e.g. A/P, short-term debt
sum of all assets
sum of all liabilities
total equity on balance sheet
cumulative retained profits
earnings before interest & tax
total annual sales
Results are estimates only and do not constitute financial, tax, or legal advice. Consult a qualified professional before making financial decisions.
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The Altman Z-Score is a quantitative model developed by NYU finance professor Edward Altman that predicts business bankruptcy with 72–80% accuracy 1–2 years before failure. It combines five financial ratios — working capital, retained earnings, EBIT, equity-to-debt, and revenue-to-assets — into a single composite score. A score above 2.99 indicates a safe zone, 1.81–2.99 a grey zone, and below 1.81 a distress zone with high bankruptcy probability. For business owners and CFOs, the Z-Score is not just an academic metric — it is a diagnostic tool that identifies which financial dimensions are driving distress risk. A company can have strong revenue but still score poorly due to low working capital (liquidity crisis), high debt relative to equity (leverage risk), or insufficient retained earnings (historical profitability weakness). Knowing which ratios are dragging down the score tells you exactly where to focus. This calculator computes the full Altman Z-Score, shows your score relative to the three zones, breaks down each ratio's contribution, flags the ratios that most impair your score, and models how improving each dimension would change your overall risk level. It covers both the original Z-Score (public companies) and the Z'-Score (private companies), which uses book value of equity instead of market value.
- →You want to objectively assess your business's financial health and bankruptcy risk
- →A lender or investor has asked about your Z-Score and you want to calculate and understand it
- →Your business is experiencing cash flow pressure and you want to quantify how close to distress you are
- →You want to identify which financial ratios to prioritise to reduce bankruptcy risk
- →You are evaluating a potential business acquisition and want to assess the target's distress risk
- →You are a creditor evaluating whether to extend credit or restructure a business's debt
Marcus, 44, Denver. Manufacturing business, private company. Working capital: $180,000 (total assets: $950,000). Retained earnings: $85,000. EBIT: $120,000. Total debt: $620,000. Book equity: $330,000. Revenue: $1,400,000. Z'-Score: 2.41 — Grey Zone. Weakest ratio: equity/debt (0.53). If Marcus reduces debt by $120,000, score improves to 2.87 — approaching Safe Zone. The bottleneck is leverage, not revenue or profitability. Targeted debt reduction is the clearest path to restoring a healthy Z-Score.
- ✕Using the original Z-Score (market equity) for a private company — always use the Z'-Score for private businesses
- ✕Treating the Z-Score as a prediction rather than a diagnostic tool — it identifies weaknesses, not just an overall risk level
- ✕Ignoring the grey zone — companies in grey zone need action, not monitoring
- ✕Not segmenting which ratio is the bottleneck before deciding on a corrective strategy
- ✕Using tax-adjusted net income instead of EBIT for X3 — the ratio specifically requires earnings before interest and taxes
What is the Altman Z-Score and how accurate is it?
The Altman Z-Score is a multivariate financial formula developed in 1968 by Edward Altman to predict corporate bankruptcy. It combines five financial ratios weighted by their predictive power. The original model achieved 72% accuracy predicting bankruptcy 2 years in advance, improving to 80–90% for 1-year predictions. The private-company version (Z'-Score) uses book value of equity instead of market value and has similar predictive accuracy for small and medium businesses.
What is the difference between the Z-Score and Z'-Score?
The original Z-Score uses the market value of equity, which is observable for publicly traded companies. The Z'-Score uses book value of equity instead, making it applicable to private companies where no market price exists. The Z'-Score has slightly different weighting coefficients and different zone thresholds (safe: above 2.9, distress: below 1.23). This calculator computes the Z'-Score for private companies by default, as most small businesses are privately held.
What does a score in the 'grey zone' mean?
The grey zone (Z'-Score 1.23–2.9) indicates elevated risk without certainty of distress. Companies in the grey zone have identifiable financial weaknesses but are not in imminent danger of bankruptcy. Many grey zone companies recover through improved liquidity, debt reduction, or profitability improvement. The grey zone is the action zone — the score is warning that current trends are not sustainable, but there is time to address the underlying issues.
What are the 5 ratios in the Altman Z'-Score?
X1: Working capital / total assets (liquidity). X2: Retained earnings / total assets (historical profitability and reinvestment). X3: EBIT / total assets (operating efficiency). X4: Book equity / total liabilities (leverage protection). X5: Revenue / total assets (asset utilization efficiency). Each is weighted differently: X3 (EBIT/assets) and X4 (equity/liabilities) have the highest weights because they measure the most reliable predictors of financial distress.
What is the fastest way to improve a low Z-Score?
The highest-impact improvements depend on which ratio is weakest. If X1 (working capital) is low: accelerate receivables collection, extend payables, or reduce short-term debt. If X4 (equity/liabilities) is low: pay down debt or bring in equity capital. If X2 (retained earnings) is low: retain more profit instead of distributing it. If X3 (EBIT) is low: improve operating margins through pricing or cost reduction. The calculator shows which ratio change produces the largest score improvement.