Can a 60-Year-Old Formula Still Predict Bankruptcy?
In the era of real-time data and AI forecasting, one might assume traditional models have lost their edge.
But what if a formula created over 50 years ago still reliably predicts which companies are heading toward bankruptcy?
Meet the Altman Z-Score — a model that blends simplicity and power, and is still used by banks and analysts today.
In this post, I test this formula on five Saudi-listed companies to see what it reveals — and the findings are eye-opening.
🔢 Z-Score Formula (Toggle Block or Text with Border)
Formula:
Z = 1.2X₁ + 1.4X₂ + 3.3X₃ + 0.6X₄ + 1.0X₅
Where:
- X₁ = Working Capital / Total Assets
- X₂ = Retained Earnings / Total Assets
- X₃ = EBIT / Total Assets
- X₄ = Market Value of Equity / Total Liabilities
- X₅ = Sales / Total Assets
Interpretation Zones:
- ✅ Safe Zone: Z > 2.99
- ⚠️ Grey Zone: 1.81 < Z < 2.99
- 🚩 Distress Zone: Z < 1.81
📊 Saudi Company Analysis (Table Block)
Company Name | Z-Score | Zone | Interpretation |
Electrical Industries Company | 7.40 | ✅ Safe | Healthy (low risk of bankruptcy) |
Middle East Specialized Cables Co. | 4.38 | ✅ Safe | Healthy (low risk of bankruptcy) |
Saudi Chemical Holding Company | 1.68 | 🚩 Distress | High risk (potential bankruptcy) |
Saudi Cement Company | 5.87 | ✅ Safe | Healthy (low risk of bankruptcy) |
Al Yamamah Steel Industries Co. | 2.53 | ⚠️ Grey | Caution (possible financial stress) |
🔍 Key Takeaways (List Block or Text Block with Icons)
- Saudi Chemical Holding: In the Distress Zone — urgent review of operations and capital structure may be needed.
- Al Yamamah Steel: In the Grey Zone — may be under margin pressure or leverage risk.
- Others: Strong fundamentals now, but vigilance is still necessary in volatile markets.
🇸🇦 Why This Matters (Heading + Paragraph Block)
For Saudi investors and finance leaders:
- Investors get early risk signals — before trouble hits earnings.
- Lenders use this model for credit decisions and loan pricing.
- Corporates use it for internal risk monitoring and IPO preparation.
Whether you’re managing treasury or raising capital, the Z-Score can be your strategic lens.
