Health and quality: how strong is a company?

Financial health: Altman's Z''-score

Altman published the original model in 1968.

Z'' = 6.56 × working capital ÷ total assets + 3.26 × retained earnings ÷ total assets + 6.72 × operating result ÷ total assets + 1.05 × equity ÷ liabilities. Above 2.6 is healthy, 1.1 to 2.6 the grey zone, below 1.1 vulnerable. Scores above 10 are shown as "more than 10".

If the last part (equity against liabilities) carries more than half of the score, we say so: the score then rests mainly on a large buffer, not on operations.

Quality: an adapted Piotroski score

Up to nine fixed rules, each met or not, compared with the year before:

• Profit: there is a profit.
• Cash flow: profit plus depreciation is positive.
• Return: operating result relative to the balance sheet rises.
• Profit from operations: the operating result is positive and at least half of the result before tax.
• Long-term debt: falls relative to the balance sheet (or there is none).
• Liquidity: rises.
• No capital injection.
• Gross margin: rises.
• Turnover relative to the balance sheet: rises (only when turnover is reported).

From 75%: "Performing strongly". Up to 40%: "Performing weakly". In between: "Performing fairly". With fewer than five computable rules, no quality score is shown.

When not?

Holding companies (NACE 64.2) and real estate companies (68.2) do not fit these models: we show "Not applicable". Without enough headings in the accounts, the score drops out.

What it is not

Not a credit opinion and not a prediction. Payment behaviour, guarantees and recent events are not included. Wrong for your company? Click "Is this wrong for your company?".