372 larger US companies filed for bankruptcy protection in the first half of 2026 — the highest first-half total since 2010, and business filings overall are up 13% year over year. Most investors screen for growth and value long before they screen for the risk of a company going under entirely. The Altman Z-Score was built specifically to catch that risk early, using nothing but numbers already sitting on the balance sheet and income statement.
What the Z-Score actually measures
Developed by NYU professor Edward Altman in 1968, the Z-Score combines five weighted financial ratios into a single number that estimates the probability of bankruptcy within roughly two years. The original formula, built for public manufacturers, is:
Z = 1.2(working capital / total assets) + 1.4(retained earnings / total assets) + 3.3(EBIT / total assets) + 0.6(market value of equity / total liabilities) + 1.0(sales / total assets)
Each term captures a different dimension of financial health: liquidity, accumulated profitability, operating efficiency, market confidence relative to debt load, and asset turnover. No single ratio tells the full story on its own — the Z-Score's value is in blending five of them into one comparable figure.
Reading the score: safe, grey, and distress zones
Above 2.99 — Safe zone: low probability of bankruptcy in the near term based on historical classification accuracy.
1.81 to 2.99 — Grey zone: some signs of financial stress; warrants a closer look at trend direction, not just the current reading.
Below 1.81 — Distress zone: historically associated with a high probability of bankruptcy within about two years.
In Altman's original backtesting, the model correctly identified around 72% of companies that went bankrupt within two years, and later independent studies have found one-year accuracy in the 80-90% range. It is a statistical screen, not a certainty — a low score flags elevated risk worth investigating, not an automatic sell signal, and a high score doesn't rule out fraud, a sudden liquidity crunch, or a single catastrophic event.
Why this matters more in 2026's credit environment
Small businesses have been hit hardest, with small-business bankruptcy filings up roughly 50% year over year in the first half of 2026, driven by higher borrowing costs and rising expenses. Interestingly, credit markets have stayed relatively calm through this — high-yield credit spreads actually tightened from March to June — which means distress isn't showing up as broad market panic. It's concentrated in individual, over-leveraged names, exactly the kind of company-specific risk a Z-Score screen is designed to isolate rather than something a macro indicator would catch.
How to screen for the same signal
DeltaScreener doesn't compute a single Z-Score field, but its component ratios are screenable individually. Pair a low debt-to-equity filter with a positive current ratio and positive operating margin to approximate the same distress signal the Z-Score is built from — companies with thin liquidity, weak profitability, and heavy debt loads are the ones the formula flags first.