Z-score estimated for private firms
T1 = (Current Assets − Current Liabilities) / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Book Value of Equity / Total Liabilities
T5 = Sales/ Total Assets
Z' Score Bankruptcy Model:
Z' = 0.717T1 + 0.847T2 + 3.107T3 + 0.420T4 + 0.998T5
Zones of Discrimination:
Z' > 2.9 -“Safe” Zone
1.23 < Z' < 2.9 -“Grey” Zone
Z' < 1.23 -“Distress” Zone
Z-score estimated for non-manufacturers & emerging markets
T1 = (Current Assets − Current Liabilities) / Total Assets
T2 = Retained Earnings / Total Assets
T3 = Earnings Before Interest and Taxes / Total Assets
T4 = Market Value of Equity / Total Liabilities
Z-Score bankruptcy model: Z = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4
Zones of discriminations:
Z > 2.9 -“Safe” Zone
1.22 < Z < 2.9 -“Grey” Zone
Z < 1.22 -“Distress” Zone