We calculate the Altman Z-Score for 98 US stocks from SEC EDGAR filings — and flag companies in the danger zone before they blow up your portfolio. The formula has predicted bankruptcy with 80-90% accuracy since 1968.
Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E — each factor measures a different dimension of financial health, all extracted from SEC EDGAR 10-K filings.
Short-term liquidity. A negative ratio means the company cannot cover its current obligations.
Cumulative profitability over the company's life. Low = history of losses or excessive payouts.
Operating efficiency — the highest-weighted factor. Cannot generate earnings from assets = trouble.
Market vs. debt. A falling stock price directly weakens this ratio, creating a feedback loop.
Asset utilization. Low efficiency suggests unproductive assets or revenue decline.
The three zones: Below 1.8 = distress zone (high bankruptcy probability). 1.8 – 3.0 = gray zone (uncertain). Above 3.0 = safe zone. Full formula derivation on the methodology page.
What financial distress actually looks like in the numbers — and how the Z-Score caught it.
Z-Score of 1.56: negative working capital, massive debt, and years of negative free cash flow from the 737 MAX fallout. The Z-Score caught the deterioration years before the crisis became headline news.
Once safely above 5.0, Intel's Z-Score has declined to 4.76 as it lost process leadership to TSMC and market share to AMD. The trend — not just the number — told the story early.
Z-Score of 11.87: strong operating earnings, massive retained earnings, and a market cap that dwarfs total liabilities. This is what the safe zone looks like for a wide-moat tech company.
A stock with a distress-zone Z-Score AND negative margin of safety is the most dangerous combination for value investors.
Z-Score below 1.8. Working capital is negative, debt is rising, operating earnings are shrinking. The structural foundation is weak.
Even at the beaten-down price, our three-factor model says the stock is overpriced. Free cash flows cannot justify the current market cap.
"It was $100, now it's $30 — 70% discount!" But the question is not where the stock was. It is where the business is going. Read the warning signs.
After screening for risk, check the other dimensions before making any decision.
Is the distressed stock actually undervalued? A positive margin of safety with a recovering Z-Score could be a turnaround opportunity.
A distressed company with a 4-star moat has very different recovery odds than one with a 1-star moat. Competitive advantage supports recovery.
Distressed companies cut dividends first. If you hold for income, verify the payout is sustainable before the cut announcement.
Every stock in the distress zone (Z < 1.8) — ranked by severity with full component breakdowns.
Stocks that look cheap but have distress-zone Z-Scores and negative margin of safety. The most dangerous combination.
How the 5-factor formula works, what each component measures, and its 80-90% accuracy record.
The behavioral and financial patterns that turn cheap stocks into money pits.
A financial formula created by Edward Altman in 1968 that predicts bankruptcy probability within 2 years. It combines five balance sheet ratios into a single number. Below 1.8 signals distress, 1.8-3.0 is the gray zone, and above 3.0 indicates financial health. Historical accuracy: 80-90%.
No. A low Z-Score means the balance sheet is under stress. Some companies recover from the distress zone; others file for bankruptcy. The trend (improving vs. declining) is often more informative than the absolute number.
The original formula is less reliable for financial firms because their balance sheet structures are fundamentally different. We still calculate the score but flag this limitation on ticker pages.
A stock that appears cheap on traditional metrics but keeps getting cheaper. We flag value traps when a stock has both a distress-zone Z-Score AND negative margin of safety — meaning it's financially stressed and still overpriced.
After screening for risk, check whether the stock is undervalued or overvalued.
A distressed company with a wide moat has better recovery odds than one without.
Distressed companies often cut dividends first. Check the safety grade.