How to Use This Calculator
- 1
Enter Financial Statement Data
Input Working Capital, Total Assets, Retained Earnings, EBIT, Book Value of Equity, Total Liabilities, and Annual Sales from the company's balance sheet and income statement.
- 2
Review Your Results
The calculator displays the Altman Z'-Score with zone classification (Safe, Grey, or Distress), plus all five component ratios (X1–X5) with their weighted contributions. The Insights panel shows which ratio contributes most, distance to zone thresholds, and a Z'-Score Composition breakdown bar.
Example Calculation
A private manufacturing firm wants to assess its bankruptcy risk using the Altman Z'-Score model for its 2026 fiscal year financial statements.
Working Capital
$1,000,000
Total Assets
$5,000,000
Retained Earnings
$2,000,000
EBIT
$800,000
Book Value of Equity
$3,000,000
Total Liabilities
$2,000,000
Annual Sales
$10,000,000
Results
Altman Z'-Score
3.61
X1 — Working Capital / Assets
0.2000
X2 — Retained Earnings / Assets
0.4000
X3 — EBIT / Assets
0.1600
X4 — Book Equity / Liabilities
1.5000
X5 — Sales / Assets
2.0000
Insights card shows X5 (Turnover) is the largest contributor at 1.
Tips
Check the Breakdown Bar for Weak Spots
The Z'-Score Composition bar shows how much each ratio contributes. In the default example, X1 (Liquidity) contributes only 0.143 — the smallest segment. Improving working capital from $1M to $2M would add 0.143 to the score.
Track Scores Over Quarters
Use the Recent Calculations history to compare Z'-Scores across periods. A declining trend — even within the Safe Zone — signals deteriorating health before it becomes critical.
Understand X3's Outsized Influence
X3 (EBIT / Assets) has the highest weight at ×3.107. The Insights panel shows that a 5% improvement in EBIT adds 0.16 points to the Z'-Score — more impact per unit than any other ratio.
Compare Against the Public Company Version
This calculator uses book value of equity (for private companies). For public companies with a market cap, use our Altman Z-Score Calculator, which uses market value of equity and different coefficients (1.2, 1.4, 3.3, 0.6, 1.0).
Assessing Financial Health with the Private Company Z'-Score
The Altman Z'-Score Calculator adapts the original bankruptcy prediction model for private companies by using book value of equity instead of market capitalization.
Enter your balance sheet and income statement data to get the Z'-Score, zone classification, and a component-by-component breakdown showing which factors drive the score.
A score above 2.9 indicates safety, 1.23–2.9 is the Grey Zone, and below 1.23 signals distress in 2026.
The Z'-Score Formula for Private Companies
The private company variant uses different coefficients than the public company model:
X1 = Working Capital / Total Assets (liquidity)
X2 = Retained Earnings / Total Assets (cumulative profitability)
X3 = EBIT / Total Assets (operating profitability)
X4 = Book Value of Equity / Total Liabilities (solvency — book value, not market)
X5 = Sales / Total Assets (asset turnover)
Z'-Score = 0.717×X1 + 0.847×X2 + 3.107×X3 + 0.420×X4 + 0.998×X5
Key differences from the public company Z-Score (1.2, 1.4, 3.3, 0.6, 1.0):
- X4 uses book value of equity instead of market value
- All coefficients are recalibrated for the private company dataset
- Zone thresholds differ: Safe ≥ 2.9 (vs 2.99), Distress < 1.23 (vs 1.81)
Worked Example: Private Manufacturing Firm
A private manufacturing firm has: Working Capital $1,000,000, Total Assets $5,000,000, Retained Earnings $2,000,000, EBIT $800,000, Book Value of Equity $3,000,000, Total Liabilities $2,000,000, Annual Sales $10,000,000.
- X1 = $1,000,000 / $5,000,000 = 0.2000 → Weighted: 0.717 × 0.20 = 0.1434
- X2 = $2,000,000 / $5,000,000 = 0.4000 → Weighted: 0.847 × 0.40 = 0.3388
- X3 = $800,000 / $5,000,000 = 0.1600 → Weighted: 3.107 × 0.16 = 0.4971
- X4 = $3,000,000 / $2,000,000 = 1.5000 → Weighted: 0.420 × 1.50 = 0.6300
- X5 = $10,000,000 / $5,000,000 = 2.0000 → Weighted: 0.998 × 2.00 = 1.9960
Z'-Score = 0.1434 + 0.3388 + 0.4971 + 0.6300 + 1.9960 = 3.61 → Safe Zone (above 2.9)
The largest contributor is X5 (Turnover) at 1.996 points, accounting for 55% of the total score.
The smallest is X1 (Liquidity) at 0.143 — improving working capital offers the best marginal gain.
Zone Thresholds for Private Companies
| Zone | Z'-Score | Interpretation | Action |
|---|---|---|---|
| Safe Zone | ≥ 2.9 | Low bankruptcy risk — financially stable | Continue monitoring quarterly |
| Grey Zone | 1.23 – 2.9 | Moderate risk — could go either way | Investigate weak ratios, increase monitoring |
| Distress Zone | < 1.23 | High bankruptcy risk within 2 years | Urgent review — improve profitability and reduce debt |
Note that these thresholds differ from the public company model (Safe > 2.99, Distress < 1.81) because the private company coefficients are calibrated differently.
Public vs Private Z-Score: Key Differences
| Feature | Public (Z-Score) | Private (Z'-Score) |
|---|---|---|
| X4 Input | Market value of equity | Book value of equity |
| Coefficients | 1.2, 1.4, 3.3, 0.6, 1.0 | 0.717, 0.847, 3.107, 0.420, 0.998 |
| Safe Threshold | > 2.99 | ≥ 2.9 |
| Distress Threshold | < 1.81 | < 1.23 |
| Best For | Publicly traded companies | Private companies, subsidiaries |
The Z'-Score's lower distress threshold (1.23 vs 1.81) reflects that private company financial data tends to be less volatile than public market valuations, so the model requires a lower bar for distress classification.
Limitations and Best Practices
The Z'-Score shares limitations with the public model:
- Industry bias — Originally developed for manufacturing. Service or tech firms with few tangible assets may score differently.
- Book value dependency — X4 uses book equity, which can lag behind actual economic value, especially for asset-light businesses or companies with significant intangible assets.
- Historical data — The score reflects past performance. Supplement with forward-looking cash flow projections and qualitative analysis of management, market position, and industry trends.
Frequently Asked Questions
What is a good Altman Z'-Score for a private company?
A Z'-Score above 2.9 indicates the Safe Zone — low bankruptcy risk. Scores between 1.23 and 2.9 fall in the Grey Zone, suggesting moderate risk. Below 1.23 is the Distress Zone, indicating high bankruptcy probability. The default example scores 3.61, placing it 0.71 points above the Safe Zone threshold.
Why does the private company Z-Score use different coefficients?
The original Z-Score uses market value of equity, which isn't available for private companies. The Z'-Score substitutes book value of equity for X4 and recalibrates all coefficients (0.717, 0.847, 3.107, 0.420, 0.998) to maintain predictive accuracy without market data. The zone thresholds also differ: 2.9 for safe (vs 2.99 for public) and 1.23 for distress (vs 1.81 for public).
Which ratio has the most impact on the Z'-Score?
X3 (EBIT / Total Assets) has the highest coefficient at 3.107, making operating profitability the most influential factor per unit. However, the largest absolute contributor depends on your company's specific ratios. In the default example, X5 (Sales/Assets = 2.0) contributes 1.996 points (55%) because the high turnover ratio multiplied by the 0.998 weight exceeds the others.
Can a healthy company have a temporarily low Z'-Score?
Yes. Aggressive debt-financed expansion, a large one-time investment, or a temporary earnings dip can pull the score down. Check which ratios dropped — if X1 (liquidity) is low due to a planned capital expenditure, the situation may be strategic rather than distressed. Always analyze trends over multiple periods.
How do I improve a low Z'-Score?
Focus on the weakest ratio shown in the Breakdown Bar. Common strategies: boost X1 by improving collections or reducing short-term debt, increase X3 by cutting costs or raising margins (highest coefficient impact), improve X5 by growing revenue without proportionally increasing assets, and strengthen X4 by retaining more earnings to build equity.