Full Description
This is not the typical definition of retained earnings; the portion of annual profits not paid to shareholders as dividends. We use the balance sheet item showing the cumulative retained earnings over the life of the company, scaled by total assets to facilitate comparison among different size companies. The measure, used by Prof. Edward Altman as part of the Z Score he developed, discriminates against newer companies that have not had sufficient time to accumulate substantial retained earnings. That's intentional. Altman points out that short history tends to be associated with greater risk of failure. In addition, this ratio measures the extent to which firms financed their assets through retention of profits, as opposed to debt
Our Formula
AltmanX2 = RetainedEarnQ/AstTotQ
NOTE: when N/A's are encountered during preliminary reports the preliminary data is excluded by falling back to previous quarter
Related Factors:
AltmanX1
AltmanX2
AltmanX3
AltmanX4
AltmanX5
AltmanX4Rev
AltmanZ