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RM score

RM score process

RM score involve rating companies on a scale of 6 grades: A, B, C, D, E and F (9 grades for a more detailed rating). We grade companies using our unique credit management indicators supported by bankruptcy records. Grade A companies have a low probability of bankruptcy; in other words, they are less likely to go bankrupt. Conversely, Grade F companies have a high probability of bankruptcy; in other words, they are more likely to go bankrupt.
Since it started providing services in December 2000, RISKMONSTER has rated all of the 2.9 million companies in its database and statistically calculated and published their bankruptcy probabilities.
One major characteristic of the RM ratings is that we not only revise them based on periodically updated data, but also by the daily collecting and analyzing of credit information. Our examination logic involves reviewing RM score twice a year according to bankruptcy trends and economic and social circumstances, so member companies can refer to constantly updated indicators.

RM's proprletary credlt management system

Main Analysis 1
Analysis of the creditworthiness of the company receiving credit

A score is given to the company receiving credit based on data on its managerial and financial foundations and its profitability in order to determine whether it is more or less likely to go bankrupt.

Main Analysis 2
Comparison with the details of companies that went bankrupt in the past (Does the firm’s conditions resemble a bankruptcy pattern?)

The characteristics of data common to the 400,000 firms that went bankrupt are classified into several patterns for comparison with data on the company receiving credit. If the data on the company resembles one of the bankruptcy patterns its rating is lowered, and if does not, its rating is raised.
Items to be analyzed include size, profit foundation, capital, financial foundation, level of disclosure and trends in creditworthiness, and multifaceted analyses are conducted based on these items.

Main Analysis 3
Timely analysis of information on the creditworthiness of the company receiving credit

At the point corporate data is published, it is already data on the situation of the company in the past. But since companies are living things, their creditworthiness constantly changes, even from hour to hour. Each day we collect various kinds of special information and data on causes for concern. Our professional analysts then analyze this information to allow us to update our RM ratings and evaluations of corporate creditworthiness in a timely manner.

【Definition of RM ratings and the expected probability of bankruptcy (annual)】

RM score Definitions Expected probability of bankruptcy
(annual)
A A An extremely high level of solvency 0.05~0.1%
B A high level of solvency 0.5~1.0%
C A moderate level of solvency 1.0~1.5%
D Concerns about future solvency (some investigations are required for transactions) 2.0~2.5%
E1 Concerns about solvency (investigations are required for transactions) Around 3.0%
E2 Around 3.5%
F1 Not suitable for ordinary transactions (full investigations are required for transactions) Around 5.0%
F2 Around 6.0%
F3 Around 7.0%
G Companies for which a judgment cannot be made  

Performance of RM score

RM score are RISKMONSTER’s proprietary indicators supported by bankruptcy records that are used to calculate the probability of bankruptcy. They have an excellent track record of determining whether a company is likely to go bankrupt.

Ratings for companies that went bankrupt (Results from April to August 2013)
  1. Annual probability of bankruptcy (expected): 6% (Grade F)
  2. About 91% of companies that went bankrupt were rated as Grade E or F when they did so!

“Companies for which a judgment cannot be made” are rated as Grade G. (Specifically, they include (1) newly established companies, (2) companies that refuse to disclose information, (3) companies that underwent the last investigation a long time ago, (4) companies in industries that are incompatible with rating decisions and (5) financial institutions that provide services such as savings)

Using the RM score effectively

Using RM score effectively to determine whether to deal with a company

To “e-credit navi”

Using RM score effectively to review all existing business partners

To “portfolio service”

Using RM score effectively to monitor existing business partners on a continuous basis

To “e-management files”

Including RM score in credit management rules

To “credit management regulations, rules and workflow formulation support services”

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