What is a Z-score?

A Z-score in credit work is a number that estimates how close a company is to default. The Altman Z-score is the common one: it combines a few financial ratios into one figure. A low score means higher bankruptcy risk. It is a model output, not a balance.

How does a Z-score work?

The Altman model takes ratios such as working capital over assets, retained earnings over assets, and sales over assets, then weights them. The result is a single score. Bands on that score are read as safe, grey, or distressed. Different industries need different cutoffs.

Credit Z-score vs statistical z-score

A statistical z-score says how many standard deviations a value sits from a mean. Analysts use that on returns and on any other series. The credit Z-score is a named bankruptcy model. Same letter, different job. Do not feed a return-series z into a credit policy and call it Altman.

What a Z-score cannot do

It cannot see fraud in the inputs. It cannot replace a cash-flow review. It lags when the last filed statements are old. Use it as a screen, then open the book. A ledger that does not reconcile will feed the model bad ratios and produce a confident wrong score.

How it works with Blnk

Blnk does not compute a Z-score. If you need the number next to a customer, store it on the identity, not on a balance.

Put the score, the model name, and the as-of date in metadata on the identity. Credit or debit nothing. A score is not money. See identities.