Z-score Model

The Z-score model is a financial tool used to predict a company's likelihood of bankruptcy. It combines five key financial ratios, which assess profitability, leverage, liquidity, and activity. By calculating a single score—known as the Z-score—investors can gauge the financial health of a business. A higher Z-score indicates a lower bankruptcy risk, while a lower score signals greater risk. This model helps stakeholders make informed decisions by providing a quantitative measure of stability and performance in a concise manner.