I sent out this free Altman Z score spreadsheet to all the people who subscribed with their email via the sign up form on the side, below this post, or whenever it pops up. Just a way of saying thank you for your loyal readership.
From now on, I’ll be sending out the latest tools to email subscribers first. If you want to be the first ones to receive future stock investment tools, make sure you sign up with your email.
The Z Score
The Altman Z score was formulated by a professor in 1968 to predict bankruptcy. You can also read a somewhat current paper by professor Altman which includes his work on the Z score, if you’re into that stuff.
Otherwise, a good concise summary and explanation can be found at Chroma Investing (he has some great stock picks as well).
The Z-score formula may be used to predict the probability that a firm will go into bankruptcy within two years.
Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. - Wikipedia
The main problem with the Altman Z formula is that the formula is not suited for many industries. Industries that operate with high leverage, such as radio and utilities will produce a low Z score which equates to a high risk of bankruptcy.
When I run companies such as Entercom Communications [[ETM]], the Z score comes out to 0.42. Even Time Warner [[TWX]] and Waste Management [[WM]] is expected to fail in the near future.
This is why it is important for investors to not just blindly believe that a low Z score predicts the death of a company. Just have to be smart about it.
Download the Free Altman Z Score Spreadsheet
altman z spreadsheet
As you can see, it is very easy to use. Simply enter the ticker, click the “Calculate” button and it will automatically calculate the Z score for you.
The yellow boxes that you see is for when a number is incorrect and a correction is needed.
- Download Randy’s SMF excel Add-in in order to retrieve the data automatically, otherwise you will just get a bunch of #NAME errors.
- Go to the SMF Yahoo group for more info
The Altman Z score spreadsheet is completely free. You are free to edit, share, link or do anything you want to it.
Install Instructions
Download the install guide and follow the instructions.
1. Navigate to Local Disk C: in My Computer or Explorer
2. Create a new folder called “SMF” without the quotations
3. Copy or cut the RCH_Stock_Market_Functions.zip file to the SMF folder
4. Unzip the contents to the directory. DO NOT unzip the contents inside another folder. All the contents should be within the SMF Add-In folder.
April 27th, 2010 at 12:49 pm
Jae, nice spreadsheet. Much prettier than mine. I’ve been using the Z-Score for a few years now. It’s a useful tool.
April 28th, 2010 at 12:16 am
Thanks Jim. It does look to be useful. Combine it with Piotroski and some good FCF figures and I should be able to find some solid companies.
April 29th, 2010 at 11:16 am
Jae,
Thanks for the plug! I wanted to add that Altman had a later revision of his Z score. The original was for manufacturing companies this later version was more simple, more accurate and for non manufacturing companies. I gave a brief description of it at: http://chromainvesting.com/2010/01/09/altman-z-score-redux-covering-your-back-side-better/
.-= Chroma´s last blog ..Investing Regret =-.
April 29th, 2010 at 10:54 pm
Chroma,
What do you mean by “The revised Altman Z score cannot be used for Manufacturing companies, which requires the original Altman Z score.”?
So the old one is for manufacturing and the revised is for non manufacturing?
April 30th, 2010 at 12:12 am
Yes. The original Z-score from 1968 was to be used for manufacturing companies. He later revised the score because he realized that it was not effective for non-manufacturing companies. And neither versio is meant to predict bankruptcies for financial companies. I think he actually has more proprietary versions now, that he does not release the actual equations for. Is that more clear or did I muddy things up more?
I am looking forward to using your spreadsheet. Thanks again for all the hard work.
.-= Chroma´s last blog ..Investing Regret =-.
April 30th, 2010 at 10:56 pm
I am getting a bunch of #?name errors in the cells.
I have downloaded Randy’s SMF excel Add-in to desktop, extracted the file to a folder on the desktop, and installed the Add-in excel file in excel. Do I need to do anything to other excel file, RCHGetelementNumber-Element-Definition? Should I save it somewhere else? etc?
Cheers
April 30th, 2010 at 11:27 pm
Jae, Chroma is correct on what he said. There are two equations for the score both relating to different industries.
May 1st, 2010 at 11:59 am
Oh right. Forgot the install section.
You have to unzip the SMF addin to c:\SMF for it to work. Then follow the instructions that I just put up in the edited post to get excel to recognize the add-in.
May 1st, 2010 at 1:24 pm
Jae – just perfect!
Thanks!
Cheers