Question 476:

Asked on October 13, 2008

Tags: Z-Score , Altman Z-Score

1

Answer:

No answer provided yet.

The Altman z-score is different than the statistical use of z-score, which is a value from the normal distribution. Altman's uses a weighted set of ratio's from a company's income statement and balance sheet. See Measuring the 'Fiscal-Fitness' of a company  for calculators and more detailed walk-throughs. It does not appear that the distribution of Altman's z-score follows a normal distribution, that is, companies scores of Fiscal-Fitness are not necessarily normal and do not have the properties of the normal curve  (e.g 68% of the values are within 1 standard deviation).

A z-score in statistics is a unit-less metric which describes where a data-point is within a distribution. The standard normal distribution has a mean of 0 and standard deviation of 1, when the raw data are converted to z-scores they have this standard form and you can quickly use the you can use the  properties of the normal curve and lookup area and know where points fall within the distribution.

See also question 452: Why does a z score always have a mean of 0 and a standard deviation of 1?