Using multiple discriminate analysis, Edward Altman created a model that provides guidance regarding a company’s credit health. The model is named The Z-Score Model. Upon providing measures from a company’s financial statements, the model would yield a single variable that is designed to be compared to a pre-specified scale. The placement of the Z-score on the scale would indicate whether a company was likely to head toward bankruptcy.

I implemented the model in Excel, and it can now be accessed through the Models page of the foquant.com website.

This model was also covered in the Fixed Income curriculum for the CFA Level 2 exam.