See the benefits that working with Company Watch can bring to your business.
We value the relationships we
build with our clients
Our mission is to engage with our clients to develop and deliver
the financial health assessment tools and analytics that enable them to manage business risk effectively.
We think there is always room from improvement and enhancement –
as technology develops and the world changes.
We hope you will join us on our journey and see the benefits
that working in partnership with Company Watch can bring your business.
Our client’s underwriting team delves deeply into the accounts of a contractor looking for a
Surety product solution to its bonding requirement. The team needs information that is very
current and looks forensically into every aspect of the company’s P&L and balance sheet.
The data also has to feed the need to be predictive, as Surety underwriters could be on risk
for as long as five years.
Company Watch data plays a key role in the underwriting management information system
that enables full risk examination – aged debtors, cash position, short term debt, long term debt,
to name a few. It also provides the experiment functionality to create highly sophisticated
‘what if’ interrogations.
Our client has utilised the services of a number of data providers for its basic search and credit rating requirements. Three years ago, the company set out to overlay this information suite with financial health assessment tools that could deliver more sophisticated analysis and forward-looking insight for use by its UK risk team. Their own search led them to Company Watch.
Company Watch has come into its own in examining larger clients and large debtor exposures. The H-Score functionality gives the client the forward-looking investigative capability it needs. Connected entities – parents, subsidiaries, other Directorships – are also easier to examine, and the direct portal into Companies House data has been very helpful in negating having to dart between systems whilst keeping the thread of a specific enquiry running.
Our client uses Company Watch analytics to monitor the financial health
of its international network of dealers and distributors.
Company Watch has created a bespoke solution for our client, augmenting existing client data
with the latest financials and developing customised scorecards designed to suit their business
model and to reflect specific aspects of their portfolio segmentation.
Following a file matching process to a monthly automated data feed, Company Watch returns
the reports in a predefined template to facilitate effective decision-making.
In addition, our client utilises Company Watch’s alerts tool to ensure that they are reviewing
dealers as close to account filing as possible.
The H-Score provides an immediate snapshot of company health and performance, enabling our client’s underwriting team to review companies and portfolios, as well as having the capability of tracking performance against specific industry averages and market fluctuations.
Company Watch is instrumental to the way in which our client monitors counterparty risk for both existing insureds and prospect cases. Its financial analytics are integral to unique product offerings such as non-cancellable limit coverage.
Our Real Estate fund manager client started working with Company Watch in 2011 following a thorough review of providers. The information requirement was both broad and deep, for example reviewing the covenants from anything from a single property to an entire shopping centre, rating tenants or examining the financial performance of contractors.
Company Watch was a clear winner, not only because of the richness of the data available, but also the ease with which the information was available from within the system. 7 years later it remains a key component within financial risk and analysis at the company.
Working with the client to understand their key concerns and coupling this with our expertise on the pressure points which can cause certain types of companies to deteriorate rapidly, we undertook the following:
An identification of the suppliers within
our databases (including group structures)
Credit scoring the suppliers using current financial data
Based on a range (25) of economic scenarios that were discussed with the client,
we then modelled a range of financial outcomes for these suppliers
Using our abridged (abbreviated) company model
to impute P&L figures where needed
Modelling Outcome was >1M sets of modelled financials and associated
credit scores. These were discussed and presented to the client in risk ‘buckets’
By flexing the economic assumptions we were also able to give an indication of
which of them was most likely to have the biggest effect on the outcome:
stress-testing the results demonstrated which assumptions
were most critical to the portfolio.
“For a long time I’ve used a service called Company Watch to help me keep
on top of companies with weak balance sheets. Sometimes it’s obvious that a company is poorly financed but sometimes it’s not. Company Watch calculates an H-Score, a twenty-first century version of the Z-Score, for each non-financial company it follows.
To make it possible to predict problems in any company, it compares a large sample of the financial statements of businesses that got into financial difficulties in the past (the ‘failed group’) with those that did not. This enabled Company Watch to build mathematical models that can be applied to any company to determine the extent to which it reveals the characteristics of the failed group. Companies are scored on a financial health rating of 0 to 100 with 100 the strongest. Companies in the lower quartile have sufficient of the characteristics of failed companies to render them vulnerable. It is very unusual for companies with scores higher than 25 to experience financial distress.
The models consist of seven key interactive measures, ratios that are treated mathematically and weighted before being combined to produce the single measure, the H-Score. In support of the H-Score, each of the seven measures is scored as well, to reveal and evaluate any company’s financial strengths and weaknesses over the past five years. Scores are recalculated every time a company produces financial results.”
“The H-Score is one of the inputs I review every time I look at a company. Also, any company in my portfolio that is in the weakest quartile gets my special attention. A bit like technical analysis it’s not that I say I’ll never own a company with a poor chart or poor H-Score but, if I do, I will want to do so with my eyes fully open and pay special attention to the company’s progress. If something starts to go wrong, these are the holdings that should be sold early, even if this means selling the holding at a loss. Highly geared companies are particularly exposed if business conditions change for the worse. Generally, I will take a smaller holding in these types of company than I would if the balance sheet was stronger. The ones in the lowest decile or so are the most risky of all. Also, I watch very carefully companies that historically had good scores, but which subsequently enter the lowest quartile. I also look out for otherwise strong companies with a steadily declining H-Score and ones with a very volatile H-Score history.
“Company Watch sends me a list each fortnight of companies at risk (in the lowest quartile), companies that have entered the at-risk zone and companies no longer at risk. This is one of my essential pieces of regular reading. As a further check, in more highly geared business it’s worth looking at where the debt trades (if it does trade). I’ve sometimes seen businesses where equity investors are quite cheery about the company when debt investors are paying a big discount on the debt. I would rather take my steer from the debt investors (if the debt is not worth near par, the equity may be worth very little). It’s also worth looking at credit default spreads where these exist for similar reasons.
“Of course, most companies use debt and debt is not normally bad news. Companies that use debt sensibly can increase returns substantially for equity investors. Others have inefficient balance sheets today, and here shareholders should be asking for more debt. If I had my time again in running my funds and had avoided every share with a bottom quartile sector H-Score I might have missed a few winners, but I believe I would have avoided most of my disasters.”
Extracts from: Anthony Bolton, Investing Against the Tide
Edinburgh: Pearson Education Limited, 2009 © Anthony Bolton, 2009