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How strong of a credit is your business?

Updated: Dec 13, 2023

Run this calculation to determine your company's financial strength and viability:

Creditors and financial analysts will use a 'modified' Z-Altman Score for private businesses to assess financial strength.

Five ratios are weighted, and then added together to arrive at a credit worthiness score.

Here are the model's ratios that comprise the total score:

  1. (Working Cap/Assets)*.717 = ?

  2. (RE/Assets)*.847 = ?

  3. (EBIT/Assets)*3.107 = ?

  4. (NW/Liab)*.420 = ?

  5. (Sales/Assets)*.998 = ?

= ? for your business.

  1. Divide your working capital (current assets - current liabilities) by your Total Assets, then multiply that result by .717, and record your liquidity score.

  2. Divide Retained Earnings (just Retained Earnings of Total Book Equity) by Total Assets, multiply by .847, and record your capital strength score.

  3. Divide EBIT (Earnings before Interest and Taxes) by Total Assets, and multiply the result by 3.107 (by far the most important ratio in the model). Record your profitability strength score.

  4. Now take all Book Equity, Retained Earnings plus Paid-In Capital, and divide Total Book Equity by Total Liabilities, then multiply the result by .420, and record leverage score.

  5. Finally, Divide Total Sales by Total Assets, and multiply by .998, and record asset efficency score.

Add up the five individual scores for your company's Altman-Z credit score.

Notice the heavy weighting on the EBIT/Assets ratios - which is multiplied by 3.107, while the other ratios are discounted slightly.

A score of 1.1 or below suggests high bankruptcy risk.

A score between 1.1 - 2.6 starts with 'heavy concern' at the lower end, to 'monitor' from 1.8 to 2.6.

A score above 2.6 suggests your business is in excellent financial condition.

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