Four key coal stocks all rate at a high risk of bankruptcy: James River Coal (JRCC_), Patriot Coal(PCX_), Arch Coal(ACI_) and Alpha Natural Resources(ANR _). The Altman Z score for these four companies has also been worsening in recent quarters, but this shouldn't come as any surprise as the coal stocks hit a valuation low in October: James River: an Altman Z score of 0.90 (as of the end of the third quarter 2011) vs. a score of 2.0 in the fourth quarter of 2010. Patriot Coal: an Altman Z score of 0.75 vs. a score of 0.93 in the fourth quarter of 2010. Arch Coal: an Altman Z score of 0.86 vs. a score of 2.28 in the fourth quarter of 2010. Coal stocks are at significant balance sheet risk based on the Altman Z bankruptcy risk ratio, which was invented by New York University professor Edward Altman in 1968. The Altman Z-Score measures several aspects of a company's financial health -- including working capital, total assets, total liabilities, market capitalization, sales, retained earnings and earnings before interest & taxes (EBIT) -- to forecast the probability of a bankruptcy protection filing within two years. Since its inception, the formula has been 72% accurate in predicting corporate bankruptcies two years prior to the filing, according to Investopedia. Companies with a Z-Score of 3 or higher are considered safe with little danger of bankruptcy, while those with a score of 1.81 or lower are considered distressed and are more likely to go bankrupt. Anything in between is a grey area. Alpha Natural Resources: an Altman Z score of 0.73 vs. a score of 2.87 in the fourth quarter of 2010.