Credit Analysis & Forensic Accounting
Springate S-Score & Zmijewski Distress Formula
Cross-validate private-firm credit risk without market-cap inputs using Gordon Springate’s (1978) 4-factor S-Score (0.862 cutoff) and Mark Zmijewski’s (1984) distress index.
Screen private middle-market borrowers where Altman’s market-cap X_4 is unavailable!
Original Altman Z-Score requires public market value of equity, making book-only solvency models essential for private commercial-lending and supplier-credit reviews! Two accounting-only benchmarks lead empirical credit screening: (1) Gordon Springate’s (1978) Stepwise MDA S-Score = 1.03*(Working_Capital / Total_Assets) + 3.07*(EBIT / Total_Assets) + 0.66*(EBT / Current_Liabilities) + 0.40*(Sales / Total_Assets) (where S < 0.862 flags insolvency distress; S >= 0.862 is healthy); and (2) Mark Zmijewski’s (1984) Weighted-Sample Distress Index X_Zm = -4.336 - 4.513*(Net_Income / Total_Assets) + 5.679*(Total_Liabilities / Total_Assets) + 0.004*(Current_Assets / Current_Liabilities) (where X_Zm >= 0 indicates >= 50% distress score, while negative X_Zm < 0 indicates financial health)!
Verify on exact accounting ratios: WC_to_TA = 0.20 (B2), EBIT_to_TA = 0.10 (B3), EBT_to_CL = 0.25 (B4), Sales_to_TA = 1.50 (B5), NI_to_TA = 0.06 (B6), TL_to_TA = 0.50 (B7), and Current_Ratio CA_to_CL = 2.00 (B8): Springate S-Score is 1.03*0.20 + 3.07*0.10 + 0.66*0.25 + 0.40*1.50 = 0.206 + 0.307 + 0.165 + 0.600 = 1.2780 (>= 0.862 Healthy); Zmijewski Index is -4.336 - 4.513*0.06 + 5.679*0.50 + 0.004*2.00 = -1.7593 (< 0 Healthy -> "Dual Model Pass: Solvent")! Stress leverage to TL_to_TA = 0.90 and losses NI_to_TA = -0.10 -> Zmijewski flips positive to +1.2344 ("Distress Alert")!
| Forensic Credit Model | Formula | Verified Output |
|---|---|---|
| Springate (1978) 4-Factor S-Score | 1.03*WC/TA + 3.07*EBIT/TA + 0.66*EBT/CL + 0.40*S/TA | 1.2780 (>= 0.862 Solvent) |
| Zmijewski (1984) Distress Index | -4.336 - 4.513*NI/TA + 5.679*TL/TA + 0.004*CA/CL | -1.7593 (< 0 Solvent) |
| Zmijewski Under Leveraged Loss Stress | NI/TA = -0.10, TL/TA = 0.90 | +1.2344 (>= 0 Distress!) |
| Combined Dual-Screen Credit Status | IF(AND(S >= 0.862, X_Zm < 0), ...) | Dual Pass: Solvent |
Gordon Springate (1978) S-Score Formula
Validate non-negative Sales/TA >= 0, Total Liabilities ratio TL/TA >= 0, and Current Ratio CA/CL >= 0.
=IF(B5 < 0, "Invalid Ratio Input", ROUND(1.03 * B2 + 3.07 * B3 + 0.66 * B4 + 0.4 * B5, 4))Mark Zmijewski (1984) Financial Distress Index Formula
Remember opposite polarity: higher Springate S-Score is healthier (>= 0.862), whereas higher Zmijewski X-Score means higher default hazard (>= 0.0000 flags distress)!
=IF(OR(B7 < 0, B8 < 0), "Invalid Ratio Input", ROUND(-4.336 - 4.513 * B6 + 5.679 * B7 + 0.004 * B8, 4))Try the example
Use the original values or change them to test your understanding.