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The “Altman Z-Score + App” for Assessing the Credit Risk of Companies

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This smartphone App provides the client with timely assessments of the credit risk and probability of default of companies on a global basis based on the famed and well tested Altman Z-Score family of models. Business Compass LLC has teamed up with the creator of the Z-Score model, the international global expert on credit risk, Dr. Edward I. Altman, Max L. Heine Professor of Finance at the NYU Stern School of Business and Director of the NYU Salomon Center’s Credit and Debt Markets Program, to provide this important tool for corporate credit analysis.

Our models cover (1) Industrial publicly-held manufacturing firms (Z-Score), (2) Industrial privately-held manufacturing firms (Z’ Score), and (3) Non-manufacturing industrial-firms in the US and abroad, including emerging market firms both public and private (Z”-Score).

Our results not only provide up to a three-year time series on the firms’ Z-Scores, percentile rankings, and probabilities of defaults, but also a bond rating equivalent (BRE) to use as a benchmark of credit worthiness. Note that while we rely on the historical default experience of firms based on either their original rating from credit rating agencies (CRAs) or BREs as of a point in time, our Z-Scores are up-to-date measures and are not based on human judgment. Therefore, its assessment of default probabilities is likely to be more timely and more accurate in predicting financial distress or success of corporate entities than the CRAs more stable assessments. We believe, however, that the original rating on “plain-vanilla” bonds and loans provided by the CRAs are excellent early indications of the eventual default risk of companies and their securities. But, most firms do not issue bonds and loans that are rated by the CRAs and so it is important to assess the risk of default using an easy to calculate and understandable metric—the Altman Z-Score family of models.


A firm’s current Z-Score is based on its financial statements and market values (if available) and combines a number of relevant financial ratios, each assigned a coefficient, or weighting, such that when you add up the various measures and weights (5 for the Z and Z’ model and 4 for the Z”-Score model), the result is a single number, or indicator, which is the basis for assigning a bond rating equivalent (BRE) and a probability of default (PD) for 1 to 10 years into the future.

The “Altman Z-Score + App” will calculate the Z-, Z’- and Z”-Scores for industrial firms anywhere in the world, for up to three years in the past. The user will need to supply us with the following data to enable us to provide the Z-Scores, BREs, and PDs:

  1. Current assets
  2. Current liabilities
  3. Total assets
  4. Intangible assets (if available)
  5. Sales (last 12 months)
  6. Retained earnings, sometimes called Earned Surplus (from the balance sheet)
  7. Earnings before interest and taxes (EBIT) (last 12 months)
  8. Market value of equity (if available) based on the number of common shares and preferred shares outstanding (if any) times the most current common stock (or preferred stock) prices
  9. Book value of shareholders equity
  10. Total liabilities (all liabilities, not just debt)


We determine the bond rating equivalent (BRE) for each company by comparing its most recent Z-, Z’-, or Z”-Score with the average score for appropriate bond rating classes from AAA down to D (default). Of course, if a firm is not in default, its actual bond rating will be above “D,” but our Z-Score metric can still indicate that the firm has a financial/profile consistent with other companies that have either defaulted and/or gone bankrupt.

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In addition to the firms’ Z-Scores and BREs, we will also supply a percentile ranking for each firm with respect to the population of listed manufacturing or non-manufacturing and for their industrial category. These percentiles will be updated periodically based on clients’ input. Clients will have the option to permit Business Compass LLC to “capture” the data they provide so as to add to and improve the percentile rankings and probabilities of default results. Of course, client customers names are not required, only its industrial category.


The final step in the process is to assign a 1- to 10-year probability of default. For each time horizon, there are two PDs provided. The first is relevant to existing companies in a client’s “portfolio,” i.e., not a new issue or new account receivable. In this case, we utilize the historical incidence of default 1-10 years for issues/firms with a certain bond rating as of some point in time.

A second, similar methodology, is relevant to a new client for the user (either a new bond issuer, or loan applicant, or accounts receivable or payable entity, etc.). For these PDs, we use the historical experience of over 2,500 defaulting firms over the period 1971-2010 as aggregated by Professor Altman in his highly acclaimed “mortality rate” approach. Altman analyzes firm incidence of default in a manner similar to an insurance actuary’s assessment of “new-born” human beings.

Who will find the Altman Z-Score + App useful?

  • Investors in both common stocks and corporate bonds
  • Accounts receivable managers
  • Accounts payable managers
  • Credit officers at financial institutions
  • Turnaround practitioners
  • Consultants and advisors to firms
  • Bankruptcy and Restructuring Lawyers
  • Auditors
  • Managers themselves (objective corporate health assessments)
  • Sovereign risk analysts (aggregating PDs for the private sector in different countries)
  • Securitization specialists
  • Researchers


To conclude, subscribers to the Altman Z-Score + App will receive for each firm:

  1. A Z-, Z’-, and/or Z”-Score
  2. A bond rating equivalent of the score(s)
  3. An industry percentile ranking of the score(s)
  4. A probability of default for up to 10 years in the future

To find more information about this app, please visit http://altmanzscoreplus.com.

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