Z-Score
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.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
