Altman Z-score

A model that estimates how close a manufacturer is to bankruptcy, built from five ratios: working capital, retained earnings and operating profit against total assets, market value of equity against total liabilities, and sales against total assets.

For the original public-manufacturer version, a score above 2.99 is the safe zone, below 1.81 is the distress zone, and the range between is uncertain. Separate coefficient sets exist for private firms and for non-manufacturers, and using the manufacturing version on a bank or a software company produces a number that means nothing.

Its usefulness in India is real but bounded. The model was fitted on American manufacturers decades ago, and the accounting and the failure process are both different here. It works best as a relative ranking within one sector rather than as an absolute threshold.

Treat a falling score as the signal, and the level as context.