I'm evaluating the strength of the tenant in a building I want to buy.
- The Z score depends heavily on the quality of an individual company's financial data. If they can't give you 3 years of audited financial statements, then the Z score might not give you what you want.
- For small companies (maybe revenue < $5-10M), the Z Score is generally considered unhelpful, because the financial condition of the owner or principals is far more important. Most creditors and bankers will use a combination of personal tax returns and Fair Isaac Small Business Scoring Service (or competitive solution).
The Altman Z-Score is a model for predicting corporate bankruptcies based primarily on the quality of the balance sheet. The Altman Z-Score has been shown to be successfully predictive of bankruptcy about 75% of the time. While the Altman Z-Score is the most widely used model of its kind, there are other similar models, some of which have shown better performance than the Altman Z-Score, such as the CHS model, the Ohlson O-Score, and Merton's Distance to Default. However, many of these alternatives are more complex than the Altman Z-Score and incorporate metrics that are only available for publicly traded companies.