My company is privately-held. We have an opportunity to submit a bid with a very large company. They asked for our financials, which we didn’t want to share ...

Q. (cont.) Then they said we could submit a Z-score rating verified by our outside accountants. We’d like to comply, but don’t know what a Z-score is. Could you help?

A. The Z-score is a financial ratio developed to predict whether a company will enter bankruptcy within the next two years. It was invented by financial economist, Dr. Edward Altman, in 1968. The Z-score formula takes ratios of five common business metrics to total assets or total liabilities, then adds them together. The resulting figure or "score" indicates the likelihood of bankruptcy.

For more information, see Z-Score Calculator and Z-Score: Measuring Financial Health.

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