Altman Z-Score & Piotroski F-Score Credit Diagnostic

Comprehensive institutional balance sheet solvency and fundamental accounting quality underwriter. Evaluates two-year bankruptcy probability via Edward Altman's Z-Score and nine-point accounting quality via Joseph Piotroski's F-Score.

BALANCE SHEET & INCOME STATEMENT ($M)

Total Assets (TA)

Current Assets (CA)

Current Liabilities (CL)

Retained Earnings (RE)

Operating Earnings / EBIT

Market Cap / Equity Value

Total Liabilities (TL)

Long-Term Debt

Annual Revenues / Sales

Cash Flow from Operations (CFO)

PRIOR FISCAL YEAR COMPARATIVES ($M)

Prior Year Operating Income

Prior Year Long-Term Debt

Prior Year Current Ratio

Prior Year Gross Margin %

Current Year Gross Margin %

Altman Z-Score

3.85

Safe Solvency Zone

Piotroski F-Score

8 / 9

High Quality Fundamental

Default Probability (2-Yr)

< 0.8%

Negligible Default Risk

Non-Mfg Z''-Score

6.24

Unconstrained Formula

Altman Z-Score Solvency Spectrum

Distress Zone (< 1.81) Gray Zone (1.81 – 2.99) Safe Zone (> 2.99)

Piotroski 9-Point Fundamental Accounting Quality Breakdown

The Mechanics of Corporate Solvency & Accounting Quality Underwriting

Corporate credit risk assessment requires separating transient accounting profitability from structural balance sheet solvency. Developed by Dr. Edward Altman at NYU Stern in 1968, the Altman Z-Score utilizes multiple discriminant analysis (MDA) across 5 core financial ratios to predict corporate bankruptcy with 72%–80% accuracy within a 2-year horizon:

Z = 1.2(X_1) + 1.4(X_2) + 3.3(X_3) + 0.6(X_4) + 0.999(X_5)

X_1 = Working Capital / Total Assets (Liquidity buffer)
X_2 = Retained Earnings / Total Assets (Cumulative profitability & leverage age)
X_3 = EBIT / Total Assets (Productive asset earnings power)
X_4 = Market Value of Equity / Total Liabilities (Market leverage cushion)
X_5 = Sales / Total Assets (Asset turnover velocity)

Complementing the Z-Score, Stanford accounting professor Joseph Piotroski formulated the 9-Point F-Score in 2000. While the Z-Score focuses heavily on capital structure and debt coverage, the F-Score evaluates operating momentum, accruals quality, and cash-conversion purity. Firms scoring 8 or 9 historically deliver superior equity returns and minimal credit default frequency.