The FRISK® Score Reacts Faster and Improves Risk Assessment
The global effort to slow the spread of COVID-19 continues to impact all economic regions and industries. Risk professionals must adapt quickly or risk being sideswiped by the rise in bankruptcies. Now is the time to improve your financial risk evaluation processes by adding tools like the 96%-accurate FRISK® score; as financials come but once a quarter, a metric that’s closer to real-time is essential in monitoring quick-changing corporate risk profiles. Such an addition will help identify companies that need your attention before they end up seeking court protection.
CreditRiskMonitor is a leading web-based financial risk analysis and news service designed for credit, supply chain, and other risk professionals. The core of the service is the FRISK® score, which is updated daily, and provides an easy to use “1” (highest risk)-to-“10” (lowest risk) scale for assessing bankruptcy risk. With coverage of more than 57,000 public companies around the world, risk professionals from more than 35% of the Fortune 1000 rely on CreditRiskMonitor to avoid financial loss and business disruption every day.
Time is of the Essence
In a fast-moving environment, we see that more and more of our clientele literally cannot afford to wait for risk solutions based on delayed information. That includes payment-based metrics, like Dun & Bradstreet’s PAYDEX® score, and the Altman Z"-Score, which uses financial statement ratios.
Your payment records may be up to date, yet any composite score built on payment has to wait until companies close their monthly books. Then that data has to be collected and processed. There's at least a month delay built into that design. Worse yet, the information provided is often unreliable given that public companies usually pay promptly up to the day they declare bankruptcy. CreditRiskMonitor does not include payment data in the FRISK® score precisely for this reason.
While financial statements are the gold standard for accuracy, since they use audited financials, the Z"-Score is effectively based on data that can be three months, or more, out of date. In calmer times that can be a palatable delay, which is why the FRISK® score incorporates similar financial statistics into its composite model. However, COVID-19 has exposed the risk of using data with inherent time delays built-in.
To wait an entire quarter for other risk assessment scores to catch up when the world is quickly spiraling downward is, in effect, a dereliction of one’s duty as a financial risk evaluator. CreditRiskMonitor COO Michael Flum hammered home in a recent HighRadius webinar that the FRISK® score “wraps in more timely inputs...including market capitalization, stock market volatility, and our crowdsourcing metrics, or the way our user groups are engaging with the website.” Essentially, the FRISK® score will provide updates on all of the companies in your portfolio every day. Moreover, as we have illustrated, it is needed every day in the age of coronavirus.
The Difference That Counts
The FRISK® score is a composite of four different metrics. Two, including bond ratings and financial statement ratios, are relatively slow-moving. The other two, market capitalization and volatility and the crowdsourced research behavior of CreditRiskMonitor subscribers, are updated in real-time. The fast and slow help to balance each other out, but when risk dynamics are changing rapidly, the fast components allow you to see the true nature of risk changing in your portfolio.
The proof is in the results. Consider health retailer GNC Holdings Inc. and tobacco supplier Pyxus International Inc. Both of these companies have declared bankruptcy at this point, but the FRISK® score was warning of the severe risk at each well before the DBT score, which is similar to D&B's PAYDEX® score, and the Z"-Score. Observe in the graphics below how payment scores completely missed the mark and that the Z''-Score didn’t provide an actionable warning before the bankruptcy. The FRISK® score, on the other hand, provided accurate and timely assessments:
Where Risks Are Being Missed Right Now
Although these examples highlight the accuracy and timeliness of the FRISK® score, they are historical and certainly don't help anyone deal with impending risk. It's even more telling to examine the same information for outdoor equipment supplier Briggs & Stratton Corporation, media company Sinclair Broadcasting Group Inc., and transportation equipment maker FreightCar America, Inc. In all three cases, the FRISK® score is showing risks that the Z"-Score and DBT are missing or where the FRISK® score picked up on the risk in a more timely fashion.
If you relied on payment scores or even Z"-Scores, you would have been late or completely missed the troubling changes in trend. In other words, you might not even have known to look. Do not let this happen to you in the rapidly changing environment that risk professionals face today. Add the FRISK® score to your risk management toolkit as it is updated on a daily basis and has a proven track record of success.