In manufacturing, a single weak link in the supply chain can have ripple effects across entire industries. For sectors like automotive and aerospace, where precision, reliability, and timeliness are non-negotiable, financially unstable suppliers pose a serious risk.
A case in point: Wolfspeed, a semiconductor supplier that is in the spotlight for its looming bankruptcy. While its financial troubles are only now making headlines, RapidRatings has been steadily tracking it’s decline for many years, and thanks to the FHR, we spotted the downfall early.
FHR
Wolfspeed has been on our radar for quite some time. RapidRatings’ FHR firmly classified the company as High Risk as early as 2020. Since then, Wolfspeed’s decline has accelerated, and today it remains entrenched in the bankruptcy danger zone with a Financial Health Rating of just 22 out of 100.
To put this in perspective, over 92% of companies that eventually file for bankruptcy have an FHR below 40. A look into Wolfspeed’s financial trajectory mirrors this historical trend all too closely.
While the FHR is an indicator for default risk, it also measures the firm’s efficiency, competitiveness, and operational resilience. Companies with poor financial health often struggle to maintain quality, meet delivery timelines, or invest in cybersecurity and equipment maintenance. In short, they become unreliable.
Our studies have shown that companies with weak financial health are 2.0x more likely to have issues with quality and 2.6x more likely to have issues with delivery. Both of which can lead to costly disruptions to their customers’ operations.
For industries that rely on just-in-time manufacturing and have razor-thin margins for error, a supplier like Wolfspeed represents a critical vulnerability.
Financial Dialogue
The company's Financial Dialogue Report revealed serious warning signs well before its collapse, flagging critical issues across several key financial metrics, including an inability to cover interest expenses, mounting debt, and declining sales performance:
As shown in the Financial Dialogue Report, the company’s excessive debt levels stood out as a major red flag, one that has been echoed in media coverage as a driving factor behind impending bankruptcy. Our report breaks this down in clear, accessible terms that highlights troubling leverage and asset ratios that signaled unsustainable financial pressure.
While the Financial Dialogue Report notes a strong Cash Ratio, it also asks a very good question – will it change going forward. The answer is yes. Wolfspeed has burned through $1 billion in cash since 2023, while at the same time increasing their debt by over $2.3 billion.
What Risk Managers Should Be Doing
Wolfspeed is a prime example of how a supplier’s decline can catch customers off-guard - unless they’re using the right tools.
Other risk assessment methods relying on flimsy risk indicators such as trade payment data may have been late on the warning signs or missed them all together. RapidRatings focuses on what matters most: financial statements. That focus enabled us to flag Wolfspeed’s decline early and accurately.
In a technologically-structured world reliant on semiconductors, the consequences of a single supplier’s collapse can be far-reaching. For automotive and aerospace companies where every component counts, a single high-risk semiconductor supplier can decimate production schedules, create massive inefficiencies within supply chain teams, and result in millions-of-dollars in losses and tremendous reputational risk.
Wolfspeed’s story is more than a cautionary tale: it’s a validation of the FHR’s predictive power. By using financial health to identify weak links before they snap, companies can safeguard their operations and build future-proof supply chains.
When others can miss the signs, we won’t. Because when it comes to risk, financial health is the first and most reliable line of defense.
