Written By
Paul Tracy
Updated June 28, 2021

What is the Z-Score?

The Z-score is a financial statistic that measures the probability of bankruptcy

How Does the Z-Score Work?

The Z-score is used to predict the likelihood that a company will go bankrupt. A company's Z-score is calculated based on basic indicators found on its financial statements (e.g. earnings, assets, liabilities, equity, etc.). Lower and negative Z-scores indicate a higher likelihood that a company will go bankrupt, whereas higher and positive scores indicate that a company will survive.

To illustrate, suppose company XYZ is given a Z-score of 3 and that company ABC is given a Z-score of 1. Of these two, company ABC has the greater likelihood of going bankrupt.

Why Does the Z-Score Matter?

The Z-score serves as a critical indicator of a company's financial health and likelihood to survive. Therefore, the Z-score is important in auditing as well as analyzing credit.  

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Z-Score.
Be the first to ask a question

If you have a question about Z-Score, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Z-Score, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Z-Score

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms