Altman Z-Score Calculator NZ 2026/27

Quick answer: The Altman Z-Score combines four balance sheet and profit ratios into one bankruptcy risk figure. For a private New Zealand company the right variant is Z″: 6.56 times working capital over total assets, plus 3.26 times retained earnings over total assets, plus 6.72 times EBIT over total assets, plus 1.05 times book equity over total liabilities. On the worked example below the score is 3.05, which sits in the safe zone (above 2.6). Below 1.1 is the distress zone. Enter your own figures below.

This calculator applies Edward Altman's bankruptcy prediction model to a set of financial statements. Altman built it in 1968 by taking companies that had failed and companies that had not, and working out statistically which combination of financial ratios best separated the two groups. The result was a single weighted score with defined bands, and it has remained in use ever since, by lenders assessing credit, auditors considering going concern, and owners wanting an outside view of their own balance sheet. The default here is the Z″ variant, because that is the one built for private and non-manufacturing companies, which describes almost every New Zealand SME. The original 1968 model needs a market value of equity that a private company does not have, and it was calibrated on listed manufacturers, so applying it to a private firm produces a number that looks precise and means very little. You can still select it, along with the Z′ private manufacturing variant, and each carries its own zone thresholds because the coefficients differ. The calculator shows not just the score but what each component contributed, which is the part that makes it actionable: a weak score caused by thin working capital calls for a different response than one caused by leverage. This is a screening indicator, not a verdict, and not financial or legal advice.

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Updated  Published model coefficients applied.
Not the statistical z-score. If you are looking for how many standard deviations a value sits from a mean, you want our Z-Score Calculator instead. The two share a name and nothing else: that one is a statistics tool, this one is a corporate failure prediction model.
Verification & Methodology
Z″ (default, private and non-manufacturing): 6.56(WC/TA) + 3.26(RE/TA) + 6.72(EBIT/TA) + 1.05(BVE/TL). Zones: safe above 2.6, grey 1.1 to 2.6, distress below 1.1. Note this variant has four terms, not five: the sales to assets ratio is dropped because it varies too much between industries.
Z′ (private manufacturing): 0.717(WC/TA) + 0.847(RE/TA) + 3.107(EBIT/TA) + 0.420(BVE/TL) + 0.998(Sales/TA). Zones: safe above 2.9, grey 1.23 to 2.9, distress below 1.23.
Z (original 1968, listed manufacturers): 1.2(WC/TA) + 1.4(RE/TA) + 3.3(EBIT/TA) + 0.6(MVE/TL) + 1.0(Sales/TA). Zones: safe above 2.99, grey 1.81 to 2.99, distress below 1.81. This model requires the market value of equity. For a private company there is no market value, so the field defaults to book equity, which makes the result a rough proxy rather than a true original Z.
EBIT, not net profit. The model measures operating return on assets before financing, because leverage is already captured in the equity to liabilities term.
Limitations: developed on larger firms with audited accounts. Small company balance sheets can distort it: shareholder current accounts may be classified as debt or quasi-equity, asset revaluations inflate the denominator, and owners taking drawings rather than salary raise EBIT. Young companies score low on the retained earnings term regardless of current trading.
This is not the New Zealand solvency test. Directors must satisfy the two-limb test in section 4 of the Companies Act 1993 before a distribution. A Z-Score has no legal status here.
Last verified: July 2026, against Altman's published coefficients.
Model Z″ suits almost every NZ SME.
Balance sheet
$
$
$
Working capital is the difference, calculated for you.
$
$
Accumulated profit kept in the business. Can be negative.
Profit and loss
$
Not net profit. Add back interest and tax.
3.05
Z″ score, safe zone
Distress
Grey
Safe

Z″ thresholds: distress below 1.1, grey 1.1 to 2.6, safe above 2.6.

What each component contributed

ComponentRatioWeightContribution
Total score3.05

The contribution column is what actually drives the score. A weak total caused by the working capital term is a liquidity problem; one caused by the equity term is a leverage problem, and they call for different responses.

Underlying figures

Working capital (current assets less current liabilities)$210,000.00
Book value of equity (total assets less total liabilities)$670,000.00
Current ratio1.51
Debt to equity1.16
Return on assets (EBIT / total assets)11.59%

A Z-Score is a screening indicator, not a verdict, and has no legal standing in New Zealand. Directors must satisfy the section 4 solvency test before any distribution.

What The Z-Score Is Actually Measuring

Altman's insight was that no single ratio predicts failure well, but a weighted combination of a few does. He took a sample of manufacturers that had gone bankrupt and a matched sample that had not, tested which financial ratios separated the two groups most reliably, and used discriminant analysis to assign each a weight. The output is a single number with cut-off points calibrated against the original data.

The four ratios in the Z″ model each capture something distinct. Working capital over total assets measures short-term liquidity: whether the business can meet what falls due. Retained earnings over total assets measures cumulative profitability and, implicitly, age and self-funding. EBIT over total assets measures whether the assets actually generate operating profit. Book equity over total liabilities measures how much cushion sits between the creditors and insolvency.

A business can be weak in one and strong in others. That is exactly why the combined score is more informative than any single ratio, and why the component breakdown matters more than the headline number.

Choosing The Right Variant Matters More Than People Realise

There are three published models and they are not interchangeable. Using the wrong one gives a number that looks authoritative and is not comparable to any published threshold.

The original 1968 Z was fitted on listed manufacturers and includes the market value of equity over total liabilities. A private company has no market value of equity. Substituting book value gives a different distribution of scores, which is precisely why Altman published a separate model rather than telling people to substitute.

The Z′ model re-estimated the coefficients for private manufacturers, replacing market value with book value throughout, and shifted the thresholds accordingly.

The Z″ model went further for non-manufacturers and private firms. It drops the sales to total assets ratio entirely, because asset intensity varies so much between industries that including it makes a service business and a factory incomparable. That leaves four terms with much larger coefficients, and thresholds of 1.1 and 2.6. For a New Zealand accounting practice, building company, retailer or consultancy, this is the model to use.

Worked Example: A Score Of 3.05

Take the defaults, which describe a reasonably typical established New Zealand SME. Total assets are $1,450,000.00 and total liabilities $780,000.00, so book equity is $670,000.00. Current assets of $620,000.00 against current liabilities of $410,000.00 give working capital of $210,000.00. Retained earnings stand at $185,000.00 and EBIT for the year was $168,000.00.

The four terms work out as follows. Working capital over assets is 0.1448, weighted at 6.56, contributing 0.9501. Retained earnings over assets is 0.1276, weighted at 3.26, contributing 0.4159. EBIT over assets is 0.1159, weighted at 6.72, contributing 0.7786. Equity over liabilities is 0.8590, weighted at 1.05, contributing 0.9019.

Added together the score is 3.05, comfortably above the 2.6 safe zone threshold.

The component view is where the interest lies. Liquidity and the equity cushion are carrying the score almost equally, at 0.95 and 0.90. The retained earnings term is the weakest at 0.42, which is typical of a business that has been distributing most of its profit rather than accumulating it. If this owner wanted a more robust score, retaining more earnings would be the most direct route, and it would also be the one that genuinely reduces failure risk rather than simply flattering the ratio.

Where The Score Misleads For Small Businesses

The model was built on large firms with audited accounts, and several features of small New Zealand company balance sheets can distort it.

Shareholder current accounts. Money the owner has left in the business may be shown as a liability, which depresses both the equity term and the score, even though in practice the owner is unlikely to demand it back and force a failure. Where the account is genuinely subordinated, treating it as quasi-equity gives a fairer picture, but be honest about which you are doing.

Owner remuneration. If the owner takes drawings or dividends rather than a market salary, EBIT is overstated relative to a business that pays its people properly. Our EBITDA calculator helps normalise this if you want a like for like figure.

Age. The retained earnings term systematically penalises young companies. A profitable two year old business simply has not had time to accumulate, so it can score in the grey zone while trading perfectly well. This is a known characteristic of the model rather than a signal.

Revaluations. A property revaluation inflates total assets, which sits in the denominator of three of the four ratios and mechanically lowers the score, even though the business is arguably stronger.

What To Do With A Weak Score

Read the components rather than the total. Each points somewhere different.

A weak working capital term is a liquidity problem, and the levers are debtor days, stock levels, supplier terms and unbilled work. Our cash conversion cycle calculator traces where the money is trapped.

A weak EBIT term is a trading problem and no amount of balance sheet management fixes it. Pricing, margin and overhead recovery are where to look.

A weak equity term is leverage, and the honest answer is usually more equity or retained profit rather than restructured debt, though extending terms can buy time.

Finally, remember what actually has legal force in New Zealand. The Z-Score is an analytical tool with no statutory status. What directors are required to satisfy themselves about, before any distribution, is the two-limb solvency test in section 4 of the Companies Act 1993, being whether the company can pay its debts as they fall due and whether assets exceed liabilities including contingent liabilities. A poor Z-Score is a good prompt to run that test carefully.

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How to calculate an Altman Z-Score
  1. Choose the right model variant. Use Z-double-prime for a private or non-manufacturing company, which covers most New Zealand SMEs. Use Z-prime for a private manufacturer. Use the original Z only for a listed manufacturer, because it needs a market value of equity.
  2. Enter total assets and total liabilities. Take both from the balance sheet at the same date. Total assets is the denominator of three of the four ratios, so an error here moves the whole score.
  3. Enter current assets and current liabilities. The difference is working capital, which the calculator computes for you. Negative working capital pulls the score down sharply, because it is the strongest single signal of short-term distress.
  4. Enter retained earnings. This is accumulated profit that has been kept in the business rather than distributed. It acts as a proxy for age and cumulative profitability, which is why young companies score lower even when currently profitable.
  5. Enter EBIT. Earnings before interest and tax, taken from the profit and loss. Using net profit instead understates the score, because the model deliberately measures operating performance before financing decisions.
  6. Read the score against the zone thresholds. Each model has its own bands. For Z-double-prime, above 2.6 is the safe zone, 1.1 to 2.6 is the grey zone and below 1.1 is the distress zone. Look at the component contributions to see which ratio is driving the result.

Frequently asked questions

What is the Altman Z-Score?

It is a formula developed by Edward Altman in 1968 that combines several balance sheet and profit and loss ratios into a single score predicting the likelihood of bankruptcy within about two years. It was built by statistically comparing companies that failed with companies that did not, and identifying which ratios best separated them. It remains one of the most widely used measures of financial distress, more than fifty years after publication.

Which Altman Z-Score model should a New Zealand small business use?

The Z-double-prime model, which is why it is the default here. The original 1968 Z requires a market value of equity, which a private company does not have, and it was calibrated on listed manufacturers. Z-double-prime was developed for private and non-manufacturing firms, drops the sales to assets ratio that varies enormously between industries, and uses book equity instead of market value. That describes almost every New Zealand SME.

What is the Z-double-prime formula?

Z-double-prime equals 6.56 times working capital over total assets, plus 3.26 times retained earnings over total assets, plus 6.72 times EBIT over total assets, plus 1.05 times book value of equity over total liabilities. The zone thresholds are: above 2.6 safe, 1.1 to 2.6 grey, below 1.1 distress. On the default figures the score is 3.05, which sits in the safe zone.

Why does retained earnings matter so much in the score?

Because it measures cumulative profitability and, indirectly, age. A company that has been profitable for years and retained those profits has a buffer and a track record. A young company, or one that has distributed everything it earned, has neither. This is why the Z-Score is systematically harsh on new businesses: a two year old company can be trading profitably and still score poorly simply because it has not had time to accumulate anything. It is a limitation to be aware of rather than a fault in the model.

Should I use net profit or EBIT in the Z-Score?

EBIT, meaning earnings before interest and tax. The model deliberately measures how well the assets generate operating profit, independently of how the business is financed or taxed. Substituting net profit double counts the effect of leverage, because debt already appears in the equity to liabilities ratio, and it will understate the score for any business carrying borrowings.

Is the Altman Z-Score reliable for small businesses?

Treat it as a screening indicator, not a verdict. It was developed on larger firms with audited accounts, and small company balance sheets can distort it in both directions: a shareholder current account can be classified as either a liability or quasi-equity, revaluations can inflate assets, and an owner taking income as drawings rather than salary changes EBIT. A poor score is a reason to look closely at liquidity and leverage, and a good score is not a guarantee of anything. Use it alongside cash flow, not instead of it.

How is the Altman Z-Score different from a statistical z-score?

They are unrelated despite the shared name. A statistical z-score expresses how many standard deviations a value sits from the mean of a distribution, and is used throughout statistics. The Altman Z-Score is a weighted combination of financial ratios used to predict corporate failure. If you are looking for the statistical measure, use our separate z-score calculator instead.

What should I do if the score is in the grey or distress zone?

Look at which component is dragging it down, which is why this calculator itemises the contributions. A low working capital term points at short-term liquidity, so examine debtor days, stock and the overdraft. A low EBIT term points at trading performance rather than the balance sheet. A low equity to liabilities term points at leverage, and the answer is usually equity rather than more debt. Note also that in New Zealand a poor score is worth reading alongside the section 4 solvency test, which is what directors are actually required to satisfy before making any distribution.