James Montier's C-score

Altman Z-Score is a formula used to predict the probability that a firm will go into bankruptcy within two years. The original paper by Professor Edward I. Altman can be found here.

The formula for Z-Score is as follows:

Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

A = Working Capital / Total Assets
B = Retained Earnings / Total Assets
C = EBIT / Total Assets
D = Market Value Of Equity / Book Value Of Total Liabilities
E = Sales / Total Assets

For non-U.S. and financial institutions, a modified version of the formula called Z"-Score is used.

Z" = 6.56A + 3.26B + 6.72C + 1.05D + 3.25

A = Working Capital / Total Assets
B = Retained Earnings / Total Assets
C = Operating Income / Total Assets
D = Book Value of Equity / Book Value Of Liabilities

The formula for Z-Score is as follows:

Z-Score:
  Z > 2.99            |   Safe Zone
  2.99 > Z > 1.81     |   Gray Zone
  Z < 1.81            |   Distress Zone

Z"-Score:
  Z > 2.6             |  Safe Zone
  2.6 > Z > 1.1       |  Gray Zone
  Z < 1.1             |  Distress Zone