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Edward Altman developed a Z-score model based on five financial ratios to predict whether a company will go into bankrupt or not. Altman’s Z-score model is:
Z = 0.012 A + 0.014 B + 0.033 C + 0.006 D + 0.999 E.
Where:
A = net working capital / total assets
B = retained earning / total assets
C = earning before interest and taxes / total assets
D = market value of equity / book value of total liability
E = sales / total assets
Z = Z-score
If Z-score > 2.99, Z-score predict that the company will not fail within one year. Z-score between 1.81 and 2.99 is in gray area, which is difficult to predict. If Z-score < 1.81, Z-score predict that the company will fail within one year.

Troubled stock can bring you high profit. However, investing this stock is very risky. Troubled company can correct them self or can go into bankrupt. Therefore, before you invest in this stock, you need to analyze the company:

1. Assess company’s performance from its income statement, cash flow statement, and debt-to-equity ratio. An increasing profit may show signs of improvement. An increasing debt-to-equity ratio means that the company has higher risk than before. The company might try to solve their problem by borrow more debt, which is dangerous. They can get deeper into trouble.
2. Does the company have good management? Do they have great competitive advantage? If yes, then the company has high probability to overcome their problem. 
3. Check the company probability for going into bankrupt. Edward Altman developed a Z-score model based on financial ratios to predict whether a company will go into bankrupt or not.