Core Health

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Core Health is the foundation of our risk model. We measure Core Health through an industry-specific analysis of 62 financial ratios. Core Health is then dynamically combined with our 11 Resilience Indicators to calculate the FHR®.

What is Core Health?

Core Health measures how efficiently a company is structured and operated. For example, how efficiently is a company using its assets to generate revenue, profits, and cash flow. Specifically, Core Health indicates a company’s level of financial sustainability over the next 2-3 years, providing insights on a company’s capability as a supply chain partner. Companies with strong Core Health are better positioned to take advantage of opportunities in the market and withstand shocks.

Free FHR® Report

Want to see how predictive analytics manages risks, mitigates disruptions & protects revenue loss? Request a free FHR report on any public company.

Request Report Now

The Financial Health System expresses Core Health as a 0-100 score, called a Core Health Score (CHS). Like the FHR, the CHS includes 5 color coded categories.

Very Poor Health
CHS: 0-19
Poor Health
CHS: 20-39
Medium Health
CHS: 40-59
Strong Health
CHS: 60-79
Very Strong Health
CHS: 80-100

 

We also provide four Performance Scores, which are component scores for the CHS and help you understand the company’s strengths and weaknesses with greater granularity. These include: Operating Profitability, Net Profitability, Cost Structure Efficiency, and Capital Structure Efficiency.

  • Operating Profitability
  • Net Profitability
  • Cost Structure Efficiency
  • Capital Structure Efficiency

 

 

The Importance of Core Health

Understanding Core Health provides a critical advantage when evaluating default risk. Research shows that a company with Strong or Very Strong Core Health has less sensitivity to changes in the Resilience Indicators.  This means that changes in liquidity, leverage, and earnings performance will have smaller impacts on the company’s FHR. However, when a company’s Core Health deteriorates, dropping to Medium or Poor, the Resilience Indicators become increasingly important and will have a more significant impacts on the FHR and the company’s near-term default risk, as measured by the FHR.

It is often the case that a company’s Core Health declines in advance of changes in the FHR. The decline in Core Health is providing advance early warning signals of deteriorating fundamental financial performance. These company’s will often burn through excess liquidity, take on more debt, and modify their cost structures in an attempt to maintain historical earnings performance. However, if the company does not fix the problems in their fundamental financial performance, the FHR will start to decline, indicating increased near-term default risk for the company. 

 

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