The FHR® is based on a detailed analysis of a company’s balance sheet, cash-flow statement and income-statement. For the latter two, our model requires a trailing twelve-month perspective. This eliminates the need to adjust for seasonal variations and provides a comprehensive view of financial health that is generally more accurate and predictive.
Given the severity and suddenness of economic shocks like the COVID-19 global pandemic, you may be wondering whether alternatives are available. A trailing twelve-month perspective will be more measured in its adjustment than a more reactive short-term signal.
We continue to advise relying on the FHR as computed. Businesses with poor financial health are more vulnerable to the impacts of these shocks. Conversely, businesses with strong financial health are much better positioned to withstand challenging market conditions and rebound afterward.
For clients who, nevertheless, want to consider alternatives to TTM, there are alternatives available:
- Proforma Assessments. You can work with our Client Success team to model how the FHR may be impacted by different. This could include options such as using scenarios you have developed internally or increasing our weight on activity over the more recent financial periods.
- Industry Adjustments. If you know that a given shock has outsized impacts on certain industries, you may choose to temporarily adjust your thresholds for reviewing certain companies. For example, where you may tyou may engage in dialogue with all suppliers where the FHR is below 50, instead of a usual policy of FHRs below 40.
To learn more about this topic or to explore any of the options above, we encourage you to work with RapidRatings’ Client Success team.