Altman Z-Score for Belgian SMEs: a practical guide with worked examples

In brief

Altman's Z-Score sorts a company into one of three zones: safe, grey or distressed. The Z'' version (1995) is specifically calibrated for unlisted, non-manufacturing SMEs — the profile of the vast majority of Belgian companies. With four ratios pulled from annual accounts filed at the NBB, you can decide in under a minute whether a counterparty deserves a supplier credit line, an invoicing cap or enhanced audit scrutiny.

Why an academic score today?

Edward Altman's model was published in 1968 for listed US industrial firms. It was revised twice, and the Z''-Score version (1995) is the one that applies to private, non-manufacturing companies — almost every Belgian SME. Why is it still the reference fifty years later?

• It is peer-reviewed and cited in dozens of academic papers

• It was empirically validated on thousands of real bankruptcies

• It is explainable: four ratios, a linear combination, a threshold. No black box

• It is citable in audit work, credit committees, or in front of a regulator (FSMA, CFI)

Exactly what you need when you have to justify a credit refusal or back up an enhanced due diligence file. For the legal KYC context in Belgium, see our article on the 9/18/2017 anti-money-laundering law.

The Z''-Score formula

Z'' is a weighted combination of four ratios:

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Z'' = 6.56·X1 + 3.26·X2 + 6.72·X3 + 1.05·X4

Where:

The largest coefficient (6.72 on X3) shows that operating profitability carries the heaviest weight — consistent with a credit manager's intuition: a business that loses money on its core activity is structurally at risk, whatever its balance sheet looks like.

The three zones

The grey zone is deliberately wide: Altman prefers a cautious verdict over a false positive that would refuse credit to a healthy customer.

Fully worked example

Take a Brussels-based services BV whose 2024 annual accounts (filed at the NBB Central Balance Sheet Office) show:

Computation:

• Permanent capital = 380,000 + 280,000 = 660,000 €

• Working capital = 660,000 − 450,000 = 210,000 €

• X1 = 210,000 / 1,200,000 = 0.175

• X2 = 380,000 / 1,200,000 = 0.317

• X3 = 95,000 / 1,200,000 = 0.079

• X4 = 380,000 / 820,000 = 0.463

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2
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Z'' = 6.56 × 0.175 + 3.26 × 0.317 + 6.72 × 0.079 + 1.05 × 0.463
    = 1.148 + 1.033 + 0.531 + 0.486
    = 3.20

Verdict: safe zone. This BV can be treated as a reliable trading partner over a 12-month horizon. Operating profitability (X3) is sound and the balance sheet is balanced.

Limitations and caveats

Automation via the Company Belgium API

Rather than manually retrieving annual accounts from the NBB website and computing ratios in Excel, the Company Belgium API returns the pre-computed Z''-Score for the most recent fiscal year available, along with the X1–X4 components and the zone assignment:

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GET /api/companies/{enterpriseNumber}/financial-intelligence

The response contains an academicScores block with the Altman score, the Conan-Holder score, and a consensus between the two models with a confidence level (high, medium, low) — exactly what an auditable deliverable should look like.

For access details, see the BCE Company Belgium API documentation.

Going further

• Cross the Z'' with the Conan-Holder score to raise confidence in the verdict

• Learn to read an NBB balance sheet to understand where the rubrics come from: full schema vs abridged schema

• Integrate Z'' into an automated KYC verification workflow for regulated professions — or directly into the dashboard of an accountant automating their portfolio

• Understand the difference between EBITDA, EBIT and operating result — key to computing X3 correctly