Powerful Crowdsourcing Technology Enhances Bankruptcy Prediction

CreditRiskMonitor is helping financial, supply chain and credit professionals by providing them with unique and powerful ways to make better business decisions. As a web-based publisher of financial information, CreditRiskMonitor’s breakthrough crowdsourcing technology provides insights into thousands of large public corporations.

CreditRiskMonitor’s CEO, Jerry Flum said, ‘By reviewing our subscribers’ click patterns on our website and analysing that behaviour using sophisticated and proprietary algorithms, we’ve applied those findings to aggregate data across thousands of companies.’

CreditRiskMonitor’s subscribers, the majority being corporate credit professionals at the largest companies in the world, are highly trained and thus influential in assessing credit and debt risk in some of the world’s largest corporations. CreditRiskMonitor’s research shows that its subscribers can follow distinct, trackable click patterns when assessing companies with potentially elevated financial risk.

When enough users start examining a particular company in similar ways over a specific time period, the system anonymises and aggregates that data and then incorporates those crowdsource signals into the company’s FRISK score, The FRISK score is a financial indicator proven to be 96 per cent accurate in predicting U.S. public company bankruptcy risk over a 12-month period.

‘These credit managers are making decisions on corporate risk that affect billions of dollars of purchase and sale transactions each day, and undoubtedly they have an impact on troubled companies,’ said Flum. ‘SEC Fair Disclosure regulations restrict the flow of financial information from public companies to outsiders, but these restrictions do not apply to credit managers, making them an invaluable resource when it comes to mitigating risk potential.’

CreditRiskMonitor’s crowdsourcing data makes up one of the four key metrics used in the aforementioned FRISK score, also including a ‘Merton’ type model using stock market capitalization and volatility; financial ratios, including those used in the Altman Z’-Score model; and bond agency ratings from Moody’s, Fitch and DBRS.

Used as a first line of defense by its subscribers, every public company within the CreditRiskMonitor database has a daily-updated FRISK score ranging from a ‘1’ (worst-performing) to ‘10’ (best-performing) scale. Companies in the lower half of the scale are in the ‘red zone’ and have higher risk for bankruptcy.