Edward Altman

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Edward I. Altman (born 1941) is a Professor of Finance at New York University`s Stern School of Business. Altman is known for the development of the Z-Score formula, which he published in 1968.

The Z-Score for Predicting Bankruptcy is a multivariate formula for a measurement of the financial health of a company and a powerful diagnostic tool that forecasts the probability of a company entering bankruptcy within a 2 year period. Studies measuring the effectiveness of the Z-Score have shown that the model has a 70%-80% reliability.

Altman's equation did a good job at distinguishing bankrupt and non-bankrupt firms. Of the former, 94% had Z scores less than 2.7 before they went bankrupt. In contrast, 97% of the non-bankrupt firms had Z scores above this level.