Z score

The Z score (also called Zeta) is a statistical measure developed by Professor Edward Altman of New York University. The statistic quantifies the distance (measured in standard deviations) from a data point to the mean of a data set.

A company's Z score is a positive function of the following five factors:
(net working capital) / (total assets) (retained earnings) / (total assets) (EBIT) / (total assets) (market value of common and preferred) / (book value of debt) (sales) / (total assets).

Although the weights are not equal, the higher each ratio, the higher the Z score and the lower the probability of bankruptcy.