Zmijewski Score

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Definition

The Zmijewski Score is a bankruptcy model used to predict a firm's bankruptcy in two years. The ratio uses in the Zmijewski score were determined by probit analysis (think of probit as probability unit). In this case, scores greater than X represent a higher probability of default. One of the criticisms that Zmijewski made was that other bankruptcy scoring models oversampled distressed firms and favored situations with more complete data.

The analysis was based on 40 bankrupt and 800 nonbankrupt firms.

Formula

Zmijewski Score =-4.336-4.513*(Net Income/Total Assets)+5.679*(Total Liabilities/Total Assets)+0.004*(Current Assets/Current Liabilities)

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