ALTMAN Z-SCORE reliably predicts whether or not a company is likely to enter into bankruptcy within one or two years: If the Z-Score is 3.0 or above - bankruptcy is not likely. If the Z-Score is 1.8 or less - bankruptcy is likely.A Z-Score between 1.8 and 3.0 is the gray area, i.e., a high degree of caution should be used. Probabilities of bankruptcy within the above ranges are 95% for one year and 70% within two years. A Z-Score between the two is the gray area. Obviously a higher Z-Score is desirable. It is best to assess each individual companys Z-Score against that of the industry. In low margin industries it is possible for Z-Scores to fall below the above. In such cases a trend comparison to the industry over consecutive time periods may be a better indicator. It should be remembered that a Z-Score is only as valid as the data from which it was derived i.e. if a company has altered or falsified their financial records/books, a Z-Score derived from those "cooked books" is of lesser use.
EQUITY RISK PREMIUM is a rate of return in addition to a risk-free rate to compensate for investing in equity instruments because they have a higher degree of probable risk than risk-free instruments (a component of the cost of equity capital or equity discount rate).
APR is Annual Percentage Rate, i.e. the true interest rate charged on a loan.
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