Step 1: What is the FHR

The Financial Health Rating (FHR™) is the cornerstone of the Financial Health System. By understanding how it works, you’ll be able to leverage its power to make better business decisions.

The FHR, a predictive analytic between 0 and 100, identifies companies likely to experience financial distress. We use a sophisticated profiling technique to benchmark the financial characteristics of your counterparty against millions of observations. We can predict (with very high accuracy) whether your counterparty looks more like companies which survive, or those which don't.

What you see with each FHR 

The FHR is our single, comprehensive measure of financial risk, and it will always be associated with the following contextual and supporting information:

• Risk Level: Five color-coded risk categories based on FHR. Very High Risk, High Risk, Medium Risk, Low Risk and Very Low Risk
• Estimated Probability of Default (EPD): The percentage probability the company will default within the next 12 months

• Core Health Score (CHS): A measure of operating and structural efficiency based on the industry-specific analysis of 62 financial ratios. A medium-term indicator of sustainability
• Resilience Indicators: Performance measures related to leverage, liquidity, and earnings performance, which are aligned with short-term default risk
• Financial Balance Date: The balance date for the financial statements used in the underlying analysis
• Annual or Quarterly Delta: The change in rating over the prior 12 or 3 months

Breakdown of the FHR:

• Is based purely on financial statement data (Income Statement, Balance Sheet, Cash Flow Statement)

• Employs 24 industry-specific models to account for variations in industry-specific risk

• Is calculated with 62 efficiency ratios and 11 default-resiliency ratios

• Utilizes the same model for public AND private companies

• Is company specific, with no broad market sentiment or geo-political data incorporated

For more information on our methodology, head over to our Methodology Section. A great place to start is FHR Model 101, or you might want to just head straight to Advanced Methodology.  

You can rely on the FHR to signal whether your business partners will meet their commitments to you.

• Will my supplier stay in business long enough to complete the project?

• Will my customer pay us for the product we're about to give them?

• Will this loan applicant meet its repayment schedule?

For certain applications, it can be helpful to understand a company’s probability of default as a percentage. The FHR can also be expressed in this way, as a probability of default over the next 12 months. 

For those familiar with traditional credit ratings, we discuss how they compare to FHRs in this article.