Capital Markets: Broad Applicability

FHRs™ (Financial Health Ratings) have broad applicability in the financial markets.  The financial health of companies is a critical factor in both equity and fixed-income investing and risk management.  Traditionally, research and analytics on both the Buy and Sell sides of the marketplace have been siloes – sharp and often sub-optimal segregations of “credit research” and “equity research.”  Beyond just this segregation, credit-oriented analysis has focused on the default probability of companies, not the absolute levels of risk in an individual company and in portfolios of many companies as they progress and/or deteriorate along a granular health scale.

FHRs are unique and proprietary measures of how healthy thousands of public and private companies are relative to their global industry peers.  These quantitative and conflict-free measures compare the individual company at the present moment to millions of other companies’ financial years. Furthermore, they apply industry-specific weightings to far more financial factors than any commercially accepted ratings, research or scoring tools in use today.  The results are Financial Health Ratings – measurements that have been so accurate in predicting the ultimate failure of companies that 99% of defaulting US industrial companies over the past 20 years have been labeled “below investment grade” by RRI, while 90% have been rated 40 or below (our High Risk and Very High Risk categories).

Regardless of the corporate instrument in question, or the subscriber’s style of investment, or the type of lending, underwriting, trading or counterparty risk being assessed, FHRs serve as invaluable components of any fully informed process. For more information please follow the links below:

Capital Markets: Traders Capital Markets: Risk Management

At a Glance

  • What we measure: Rapid Ratings take the same 62 measurements on every company in coverage in order to gauge growth, profitability, cost structure, debt service capability, leverage and working capital efficiency.
  • What we exclude: Rapid Ratings uses no market references such as share prices credit spreads and volatilities. In addition, Rapid Ratings makes no qualitative judgments about company managements, strategies, brand strengths, product lives, etc.
  • How we apply our measurements: Rapid Ratings weights it 62 measurements according to individual proprietary models for each of 31 industries, based on its exhaustive study of the success and failure of approximately 300,000 companies of all descriptions – large and small, public and private, successful and failed – in 14 countries over more than three decades.
  • What our results tell subscribers: The FHR rating tells the subscriber how competitive a company is versus other companies in its own and other industries over the long term. The six Performance Category Scores from which the overall FHR score is derived illustrate exactly where a company’s financial and operational strengths and weaknesses lie. In addition, there is strong historical correlation between weak FHR scores and defaults, such that any FHR score implies its own probability of default.
  • What Rapid Ratings can do that these other systems cannot: Since Rapid Ratings excludes market signals it can rate private companies that KMV and other Merton-based systems cannot. Since debt ratios are only some of the 62 measures Rapid Ratings applies, Rapid Ratings can rate companies that have no outstanding debt at all. Since there is no size bias in its ratings (versus explicit bias in its competitors’ ratings) Rapid Ratings can measure smaller companies in exactly the same way as larger companies.
  • How Rapid Ratings analysis compares to:
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FHR Report

Click below to see a sample FHR report for Ford:

Cornaggia Research Paper

Professors Demonstrate Superiority in Information Content of Rapid Ratings’ FHR to Moody’s Credit Ratings

Click below to read the full article:

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