Altman Z-Score: what it is and how Seqenta uses it
What is the Altman Z-Score?
The Altman Z-Score is a financial-health model that estimates how close a company is to financial distress. It combines five ratios from a company’s accounts into a single number: a higher score means greater distance from distress.
How Seqenta calculates it
Seqenta uses Altman’s Z′-Score, the 1983 revision for private companies — the five-variable form that uses the book value of equity rather than a market value (most UK companies are not listed, so a market value is unavailable). The formula is:
| Term | Ratio | Weight |
|---|---|---|
| X1 | Working Capital / Total Assets | 0.717 |
| X2 | Retained Earnings / Total Assets | 0.847 |
| X3 | EBIT / Total Assets | 3.107 |
| X4 | Book Value of Equity / Total Liabilities | 0.42 |
| X5 | Sales (Turnover) / Total Assets | 0.998 |
Seqenta calculates this automatically from each company’s Companies House accounts. It is the same methodology shown to signed-in users in the platform.
How to read the score
A higher Z′ means greater distance from distress. Altman’s published Z′ ranges put a “grey zone” at roughly 1.23–2.90 — below it indicates distress, above it indicates safety. Seqenta applies its own, tighter operational bands for monitoring:
| Seqenta band | Z′ range |
|---|---|
| Healthy (green) | 2.50 and above |
| Watch (amber) | 1.80 – 2.49 |
| High risk (red) | Below 1.80 |
The formula is Altman’s; the 2.50 and 1.80 cut-offs are Seqenta’s calibration, chosen for monitoring UK private companies. If you look up Altman’s original Z′ thresholds you will see the wider 1.23–2.90 grey zone — that difference is deliberate.
Worked example
Consider a fictional company — an illustrative example with round figures chosen to make the arithmetic easy to follow (not based on any real company):
| Total assets | £5,000,000 |
| Current assets | £1,600,000 |
| Current liabilities | £1,200,000 |
| Working capital (current assets − current liabilities = 1,600,000 − 1,200,000) | £400,000 |
| Retained earnings | £900,000 |
| EBIT (operating profit) | £400,000 |
| Book value of equity | £1,600,000 |
| Total liabilities | £3,400,000 |
| Turnover (sales) | £7,000,000 |
X2 = Retained Earnings / Total Assets = 900,000 / 5,000,000 = 0.180 → 0.847 × 0.180 = 0.152
X3 = EBIT / Total Assets = 400,000 / 5,000,000 = 0.080 → 3.107 × 0.080 = 0.249
X4 = Book Value of Equity / Total Liabilities = 1,600,000 / 3,400,000 = 0.471 → 0.42 × 0.471 = 0.198
X5 = Sales / Total Assets = 7,000,000 / 5,000,000 = 1.400 → 0.998 × 1.400 = 1.397
Z′ = 0.057 + 0.152 + 0.249 + 0.198 + 1.397 ≈ 2.05 (rounded to 2 d.p.)
A Z′ of 2.05 falls in Seqenta’s watch (amber) band (1.80–2.49) — the model places the company between its healthy and high-risk ranges, here driven mainly by moderate working capital and profitability relative to total assets. This is a modelled indicator of distress risk from the latest filed accounts; it describes the figures, and is not a recommendation to trade with, lend to, or avoid the company.
When a Z-Score is not available
The model needs profit-and-loss data. A company that files only a balance sheet (filleted or micro-entity accounts, with no turnover) cannot be scored, because the EBIT and sales terms are missing. In those cases Seqenta shows no Z-Score rather than an unreliable one. The related Ohlson O-Score and Piotroski F-Score are used alongside it where the data supports them.
Common questions
Which version of the Altman Z-Score does Seqenta use?
Seqenta uses Altman's Z'-Score — the 1983 revision for private companies — with coefficients 0.717, 0.847, 3.107, 0.42 and 0.998, using the book value of equity. It does not use the original 1968 manufacturing model or the market value of equity.
Is a higher Altman Z-Score better?
Yes. A higher Z'-Score indicates a greater modelled distance from financial distress. Seqenta treats 2.5 or above as healthy (green), 1.80 to 2.49 as watch (amber), and below 1.80 as high risk (red).
Can every company get a Z-Score?
No. The model needs profit-and-loss figures, so a company that files only a balance sheet — filleted or micro-entity accounts with no turnover — cannot be scored. Seqenta shows no Z-Score in that case rather than an unreliable one.
The Altman Z-Score on Seqenta is a decision-support indicator calculated from public filings. It explains what the figures suggest about financial distress; it is not financial, legal, or investment advice, and it does not recommend any action on a company.