The Altman Z-Score is a quantitative formula combining multiple financial ratios to predict the probability that a company will go into bankruptcy within 2 years.

The model classifies companies into three risk zones based on their score:

• Safe Zone (Z > 2.99): Financially sound with minimal short-term bankruptcy risk.
• Grey Zone (1.81 < Z < 2.99): Average financial health; warrants close monitoring for deterioration.
• Distress Zone (Z < 1.81): Severe financial distress with a high probability of bankruptcy within 2 years.

Originally designed for traditional manufacturing firms, Z-Score relies heavily on physical assets and working capital. It is not applicable to financial institutions and can misclassify asset-light tech companies or unique cash-flow models. Z-Score acts as a "health checkup" for corporate solvency and credit risk. It quickly flags bankruptcy hazards through hard ratios, but must always be evaluated in industry context.