QualityZ-Score#46
Net Margin Trend 5Y expresses how efficiently a company converts capital into earnings.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
1.2(WC/TA) + 1.4(RE/TA) + 3.3(EBIT/TA) + 0.6(MktCap/TL) + 1.0(Sales/TA)
Description
Edward Altman's bankruptcy prediction model, published in 1968. It combines five financial ratios into a single score that predicts the probability of corporate bankruptcy within two years. The model was originally developed using manufacturing firms but has been adapted for other sectors.
Interpretation
Above 3.0: Safe zone. 1.81-2.99: Grey zone with some risk. Below 1.81: Distress zone with high bankruptcy risk. Originally designed for manufacturing companies, so interpret cautiously for banks, utilities, and service firms.
Related metrics: Return on Equity (ROE), Return on Assets (ROA), Return on Invested Capital (ROIC). (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Net Margin Trend 5Y- Primary source filings used to calculate Net Margin Trend 5Y.
FAQ
How is Net Margin Trend 5Y calculated?+
Net Margin Trend 5Y uses the formula: 1.2(WC/TA) + 1.4(RE/TA) + 3.3(EBIT/TA) + 0.6(MktCap/TL) + 1.0(Sales/TA). compare against sector median on /screener with the Sector filter applied. ValueMarkers refreshes the calculation within 24 hours of each new SEC filing using SEC EDGAR 10-K + 10-Q filings (segment-level disclosures).
What is a good Net Margin Trend 5Y value by sector?+
There is no single 'good' value for Net Margin Trend 5Y — context is sector-driven. compare against sector median on /screener with the Sector filter applied. The /screener exposes sector-relative percentiles for Net Margin Trend 5Y on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Net Margin Trend 5Y?+
Charlie Munger, Joel Greenblatt, Terry Smith cite Net Margin Trend 5Y as a key input to to find compounders with durable economic moats. The academic anchor is Greenblatt (2005) Magic Formula and Mauboussin (2014). ValueMarkers weights this within the Quality pillar of the VMCI score (30% of total).
What are the limitations of Net Margin Trend 5Y?+
Net Margin Trend 5Y can mislead in asset-light businesses where conventional capital ratios mislead. Pair Net Margin Trend 5Y with at least two cross-checks from other VMCI pillars — for example, free cash flow trend, balance-sheet quality, and earnings consistency — before drawing a single-metric conclusion.
Where can I see live Net Margin Trend 5Y data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Net Margin Trend 5Y data, sector percentiles, and the VMCI composite score that integrates Net Margin Trend 5Y with 119 other indicators across 100,000+ stocks. The free /screener exposes Net Margin Trend 5Y as a filterable column.
Used in these guides
Related Quality Indicators
Return on Equity (ROE)Op Margin
Return on Equity measures how efficiently a company converts capital into earnings.
Return on Assets (ROA)Net Margin
Return on Assets is the metric used to how efficiently a company converts capital into earnings.
Return on Invested Capital (ROIC)EBITDA Margin
Return on Invested Capital measures how efficiently a company converts capital into earnings.
Return on Capital Employed (ROCE)FCF Margin
Return on Capital Employed is the metric used to how efficiently a company converts capital into earnings.
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