Zeta Model

This should probably be a robot sent from the future to free us from some despot who has taken over the world. It’s not, sadly.

The zeta model is the name of the formula that determines the Altman z-Score...which is a way to gain insight into whether a company might either be headed, or not headed, for the bankruptcy.

The formula for the Altman Z-Score is z = 1.2W + 1.4R + 3.3E + 0.6M + 1.0S, where W is the working capital divided by total assets, R is the retained earnings divided by total assets, E is earnings before interest and tax divided by total assets, M is the market value of equity divided by total liabilities, and S is the sales divided by total assets.

When the formula spits out a value of 1.8 or less, chances are good that the company is King Kong right after he's let go of the spire on the Empire State Building...headed for a long drop and a quick stop. If the formula spits out a value at 3.0 or above, chances are good the company is going to stay solvent.