How to Beat Public Company Bankruptcy Risk With a Solid One-Two Punch
Boxer Mike Tyson once said, “Everyone has a plan ’til they get punched in the mouth.”
We all hope to avoid getting hit by an unexpected event like the failure of a large customer or supplier. But the truth is, a customer or supplier in poor financial health can take you by surprise. To deal with this reality, you need a good way to detect counterparty distress beforehand.
Today, we set out to show you how to spot public company bankruptcy risk, and keep it on the ropes. Gaining a new perspective on this overlooked risk just may help you from getting punched in the mouth.
See how the FRISK® score can help you to keep ahead of risk.
Public Company Risk: It's Bigger Than You Think
When credit managers come to us for a risk assessment, many are shocked to learn that public companies make up a bigger portion of their portfolio than they thought. On average, public companies represent roughly 53% of a typical CreditRiskMonitor client’s risk exposure.
So while small private companies may dominate your risk radar, keep in mind that due to their size, public company bankruptcies tend to have a greater impact.
For instance, when regional electronics retailer Gregg Appliances (a subsidiary of hhgregg, Inc.) filed for bankruptcy, their top 20 listed creditors had a total of $54.7 million in unsecured debt, an average of $2.4 million each.
Remember: It’s the dollars at risk that matters most, not the type or proportion of companies in your portfolio.
Payment data can miss public company risk
When private companies struggle and working capital gets tight, they tend to stretch out payments. In these cases a payment-based metric like the DBT Index can be incredibly useful for assessing creditworthiness.
But public companies are different. With better access to capital markets, and greater financing options, they often pay bills timely, right up to a bankruptcy filing.
That’s why a metric like the FRISK® score is such a valuable tool for predicting public company risk. It’s based on a proprietary model that looks at financials, agency ratings, credit manager behavior, and many other components. Since it goes beyond payment history, it’s a better predictor of public company risk.
Three Strategies Keep Unforeseen Risk On The Ropes
Unforeseen events are a fact of life. That’s why it’s more vital than ever to proactively monitor the financial health of your public counterparties.
The good news? There’s a simple solution at your fingertips:
- Use a predictive risk score: Start with the most accurate public company financial risk score in your corner -- one that’s based on a highly advanced proprietary model, and recalculates risk daily, based on a wide range of metrics.
Note: our success rate in predicting business failure was an extremely accurate 98.6% for the past two years. Check out the FRISK® Accuracy Scorecard, to see our bonafides.
- Stratify portfolio risk: Another great risk management strategy is to break down your A/R portfolio by both risk level and dollar exposure. This helps to identify and target companies for follow-up, screening for both risk and dollar impact. Best of all, these helpful reports are available from the CreditRiskMonitor Trade Contributor Program free of charge.
- Monitor your portfolio closely: Risks change daily. Once you have your scoring process in place, keep risk in check, by pairing the most accurate financial risk score with automated notifications that provide timely updates daily. CreditRiskMonitor’s News Alerts will keep you ahead of new developments as they happen.
Using the best tools for the job is still the best way to uncover your risk exposure, avoid unpleasant surprises, and keep public company risk down for the count.
Discover your public company exposure, and learn to keep risk on the ropes. Get a free risk assessment for your portfolio
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of more than 56,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $140 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.