What is Scorecheck?
- Automated scoring system for limited companies.
- Delivers a score and grade based on the financial ratios and other non-financial
information.
- Calculated in 'real-time' to take account of the latest information available.
Background
- Scorecheck is based on the theory that it is possible to evaluate the
financial risk of a company from the behaviour of similar companies.
- Seeks to identify potential business failure and corporate credit risk.
This was done by comparing a sample of 'good' and 'bad' companies and identifying
the common characteristics.
- Developed to meet the need to have an automated scoring system.
How does it work?
- Uses financial ratios as performance indicators of financial strength
and awards points.
- Considers other non-financial information.
- Rules based on financial variables available, i.e. different rules set
based on accounts filed.
- Computes points total and converts to grade accordingly.
(See appendix one)
Fundamental Principles of Scorecheck are:
Trading Stability
- Examines relationship between profitability and the company's ability
to meet its long and short-term obligations.
Profitability
- Measures profit margins
- Declining profits weaken balance sheet.
Working Capital
- Measures ability of company to pay debts as they fall due.
Debt/Gearing
- Measures reliance on outside sources of finance to operations.
- Highly geared companies will have to pay interest on loans - this reduces
profits.
Scoring Process
- Ratios are scored and weighted according to their importance.
- The ratios calculated depend upon the financial information available.
- Points are totalled with other non-financial information being taken into
account.
Summary
- Once the score has been calculated, it is converted into a 'letter' grade.
- Final output includes the scorecheck score and grade.
- Web users are also provided with a traffic light system for easy reference
(See appendix two).
APPENDIX ONE - SCORING CATEGORIES
Once the weighted points and final calculation have been completed it will
be necessary to present a scoring category
The scoring categories are:
| G |
Gazette Code present |
| I |
The accounts are insolvent (negative net worth) |
| O |
The accounts are out of date |
| F |
The accounts are very poor |
| E |
The accounts are poor |
| D |
The accounts are average |
| C |
The accounts are above average |
| B |
The accounts are good |
| A |
The accounts are excellent |
Within the categories A to F there will also be a + and - aspect depending
on the actual points scored. The groupings will be as follows:
| ACTUAL SCORE |
|
CATEGORY |
| 0 |
- |
4 |
|
F- |
| 5 |
- |
14 |
|
F |
| 15 |
- |
19 |
|
F+ |
| 20 |
- |
24 |
|
E- |
| 25 |
- |
29 |
|
E |
| 30 |
- |
34 |
|
E+ |
| 35 |
- |
39 |
|
D- |
| 40 |
- |
44 |
|
D |
| 45 |
- |
49 |
|
D+ |
| 50 |
- |
54 |
|
C- |
| 55 |
- |
59 |
|
C |
| 60 |
- |
64 |
|
C+ |
| 65 |
- |
69 |
|
B- |
| 70 |
- |
74 |
|
B |
| 75 |
- |
79 |
|
B+ |
| 80 |
- |
84 |
|
A- |
| 85 |
- |
94 |
|
A |
| 95 |
- |
100 |
|
A+ |
It is the actual score and the score category from the above list that will
be displayed to the client.
Note:
- Where the company is classed as dormant/non-trading by the recognition
of standard sentences used by RM Online analysts then grade NT will be displayed.
- Where the company is classed as dormant by Companies House grade N is
awarded.
- If the company has not yet filed accounts then grade NA will be shown.
APPENDIX TWO - TRAFFIC LIGHTS
In addition to the scoring categories shown on the previous page, web users
can avail of a traffic light system, which reflects the score awarded and allows
for quick assessment. Clients may use the Scorecheck score when determining
credit granting authority levels.
The traffic light is awarded as follows:
- When a GREEN light is awarded - LOW RISK
- When an AMBER light is awarded
- MEDIUM RISK
- When a RED indicator is awarded - HIGH RISK