Zeta Model

Categories: Finance,

A mathematical formula developed in the 1960s by NYU Professor Edward Altman that attempts to express the chances of a public company going bankrupt within a two-year time period. The number produced by the model is referred to as the company's Z-score, which is a reasonably accurate predictor of future bankruptcy. The model is specified as: Where:Z = ScoreA = working capital/total assetsB = retained earnings/total assetsC = Earnings Before Interest & Tax/total assetsD = market value of Equity/Total LiabilitiesE = Sales/total assets