We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Z-Score?

Malcolm Tatum
By
Updated: May 16, 2024
Views: 12,904
Share

As one of the common indicators used to gauge the stability of a business, the z-score is a measure of the difference between the value of the company and the average value of companies of similar size and functioning as part of the same industry. Sometimes referred to as a standard score, it is a principle that is requires investigation into several different aspects of the business operation in order to be effective.

The z-score often involves careful research, so that a number of ratios regarding aspects of the corporation can be developed and applied. Among the data that is collected is the rate of production, average pay per hourly employee, marketing budget, capital assets, and growth projections for the next several years. Along with this, the measure will also include a thorough credit analysis. The financial condition of the company, including the credit-worthiness of the corporation, provides a great deal of relevant information that can be compared with industry averages.

Each of the components that make up the final score are rated independently, but each component does not carry equal weight in the final determination. The exact emphasis on each factor may vary slightly from one industry to another. It is important to note, however, that a low z-score often indicates that the company has serious issues that should be addressed. Essentially, one under two indicates there is a strong chance of the company going into bankruptcy.

One of most helpful applications of the final z-score involves the determination to invest in a company. Because the measurement helps to not only affirm the financial and operational stability of the company, this tool demonstrates how the corporation measures up to the competition. This means that a high score will indicate that the corporation is stable, currently profitable, and exhibits the potential to expand over the next several years.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Related Articles

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.smartcapitalmind.com/what-is-a-z-score.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.