Z score formula explained. This concept was adapted to the business and finance world by dr. Z score formula in a population. Z score sometimes called standard score is a measurement of how many standard deviations a point is away from the mean of its data set.
The formula for the z score in all three cases the z score was found by subtracting the mean from the raw score and then dividing by the standard deviation. As the formula shows the z score is simply the raw score minus the population mean divided by the population standard deviation. A z score is a statistical measurement of a scores relationship to the mean in a group of scores.
This is read as x minus mu divided by. If the population mean and population standard deviation are known a raw score x is converted into a standard score by where. The absolute value of z represents the distance between that raw score x and the population mean in units of the standard deviationz is negative when the raw score is.
S is the standard deviation of the population. The z score is a linear combination of four or five common business ratios weighted by coefficients. A z score can reveal to a trader if a value is typical for a specified data set or if it is atypical.
Altman applied the statistical method of discriminant analysis to.