Z Score

Indicator Description

To calculate Z-Score one would need to know current working capital of the company, its total assets, and liabilities, amount of latest retained earnings as well as earnings before interest and tax. Z-Score can be used to compare the odds of bankruptcy of companies in a similar line of business or firms operating in the same industry. Companies with Z-Scores above 3.1 are generally considered to be stable and healthy with a low probability of bankruptcy. Scores that fall between 1.8 and 3.1 lie in a so-called 'grey area' with scores of less than 1, indicating the high probability of distress. Z Score is used widely by financial auditors, accountants, money managers, loan processers, wealth advisers, as well as day traders. In the last 25 years, many financial models that utilize z score has been proved to be successful as a predictor of corporate bankruptcy.

Z Score 
 = 
Sum Of  
 
5 Factors 

Z-Score is a simple linear, multi-factor model that measures the financial health and economic stability of a company. The score is used to predict the probability of a firm going into bankruptcy within next 24 months or two fiscal years from the day stated on the accounting statements used to calculate it. The model uses five fundamental business ratios that are weighted according to algorithm of Professor Edward Altman who developed it in the late 1960s at New York University..

Z Score In A Nutshell

A Z Score is a data point that serves many purposes and one of them is to determine the probability of a bankruptcy within the next 24 months. With this, there are 5 different data points that are used in the equation and are weight according to an algorithm by Professor Edward Altman.

When looking at a potential investment, it is important to weigh as many important factors as you can. From cash flow, to revenue, all the way to probability of a bankruptcy, these are important data points that can factor into your decision making.

Closer Look at Z Score

Another way to use the Z Score is looking at the mean of your data set. The Z Score can be both positive and negative, giving you an answer that is quantifiable. Using the Z Score is also used in connection with standard deviation and that is a powerful tool in the investing and trading world.

Either way you decide to use this data point, it is important to understand what you are using it for and why. You can use it in relation with standard deviation or use it in relation to the health of the company you a researching. Company health is key because you are looking to make money over the long term and not have to worry about the performance of the company.

This is where joining an investment or trading community would be a great way to see how other people may be using this in their current trading and investing situations. An investing professional will also know how to use this so if you get stick you can reach out to them. Statistics in trading and investing can give you a good direction of where the market is going and if it is in your best interest to invest.

You also have to look at the chart and understand the human element because the Z Score may ignore that element and it is just as important. If the market is scared and the company is doing well, the stock may still drop in price and you have to identify that in your research. Overall, this is a great tool to use in your analysis of a company but be sure to open a demo account and test it there to ensure it fits your current method.

Other Suggestions

Analyzing currently trending equities could be an opportunity to develop a better portfolio based on different market momentums that they can trigger. Utilizing the top trending stocks is also useful when creating a market-neutral strategy or pair trading technique involving a short or a long position in a currently trending equity.

Generate Optimal Portfolios

The classical approach to portfolio optimization is known as Modern Portfolio Theory (MPT). It involves categorizing the investment universe based on risk (standard deviation) and return, and then choosing the mix of investments that achieves the desired risk-versus-return tradeoff. Portfolio optimization can also be thought of as a risk-management strategy as every type of equity has a distinct return and risk characteristics as well as different systemic risks, which describes how they respond to the market at large. Macroaxis enables investors to optimize portfolios that have a mix of equities (such as stocks, funds, or ETFs) and cryptocurrencies (such as Bitcoin, Ethereum or Monero)
Fix your portfolio
By capturing your risk tolerance and investment horizon Macroaxis technology of instant portfolio optimization will compute exactly how much risk is acceptable for your desired return expectations
Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Commodity Channel Index module to use Commodity Channel Index to analyze current equity momentum.

Other Complementary Tools

Bond Directory
Find actively traded corporate debentures issued by US companies
Go
CEO Directory
Screen CEOs from public companies around the world
Go
Bollinger Bands
Use Bollinger Bands indicator to analyze target price for a given investing horizon
Go
Portfolio Diagnostics
Use generated alerts and portfolio events aggregator to diagnose current holdings
Go
Earnings Calls
Check upcoming earnings announcements updated hourly across public exchanges
Go
Bollinger Bands
Use Bollinger Bands indicator to analyze target price for a given investing horizon
Go
Portfolio Comparator
Compare the composition, asset allocations and performance of any two portfolios in your account
Go
Idea Optimizer
Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio
Go
Price Exposure Probability
Analyze equity upside and downside potential for a given time horizon across multiple markets
Go
Portfolio Center
All portfolio management and optimization tools to improve performance of your portfolios
Go
ETF Directory
Find actively traded Exchange Traded Funds (ETF) from around the world
Go
Probability Of Bankruptcy
Get analysis of equity chance of financial distress in the next 2 years
Go