Z-Score model is an accurate forecaster of failure up to two
years prior to distress. It can be considered the assessment of
the distress of industrial corporations. Altman Z-Score is
calculated with this formula: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4
+ 1.0X5 X1 = working capital/total assets, X2 = retained
earnings/total assets, X3 = earnings before interest and
taxes/total assets, X4 = market value equity/book value of total
liabilities, X5 = sales/total assets. The zones of
discrimination were as such: Distress Zones - 1.81< Grey Zones<
2.99 - Safe Zones Study by Altman found that companies that are
in Distress Zone have more than 80% of chances of bankruptcy in
two years. X1: The working capital/Total Assets ratio is a
measure of the net liquid assets of the firm relative to the
total capitalization. Working capital is defined as the
difference between current assets and current liabilities. X2:
Retained Earnings : the RE/TA ratio measures the leverage of a
firm. Those firms with high RE, relative to TA, have