The core of the process is our proprietary FRISK® score, which indicates a company's level of financial stress, based on the probability of bankruptcy over a 12-month horizon. It’s proven 96% accurate in predicting U.S. public company bankruptcy during this time horizon.
As of June 2016, the score became even more predictive. We now factor in, when available, anonymous, aggregate crowd-sourced usage data from our subscribers. As credit managers and supply chain professionals in Fortune 1000 organizations, they are a distinguished group, and manage billions of dollars of credit risk. When they are concerned with a risky company, they investigate the company more closely, in what we've found to be distinct behavioral patterns.
With this anonymous, aggregate behavior included, the FRISK® score is more sensitive and accurate, moving a relatively small but largely important segment of businesses from risky to riskier. Essentially, when credit professionals start looking more closely as a group, there's usually something to be seen.
The FRISK® scores are a mathematically-derived opinion, calculated daily with the most recent information in our database, using a model created by our head of analytics Dr. Camilo Gomez.
The score is unique in the commercial credit space because it does not use payment data, which our research shows to be misleading for predicting public company financial stress. The model incorporates a number of powerful risk indicators including:
- A “Merton” type model using stock-market-capitalization and volatility. Merton models are widely used to measure the credit risk of a corporation’s debt and potential for credit default.
- Financial ratios, including those used in the Altman Z-Score Model
- Bond agency ratings from S&P, Moody’s and Fitch (when available)
- New: Crowd-sourced CreditRiskMonitor subscriber usage data