The Growth Score is an algorithm that has been uniquely designed by our data team and consists of 4 growth score bands.
Fundamentally, credit scoring means applying a statistical model to assign a risk score to a credit application. Red Flag uses a blended scorecard that uses both judgemental and statistical scoring models.
Here’s a step-by-step account of our development process. We:
1. Created a database of company data with four years of accounts for each business. We used four years of data to offset the impact of the pandemic.
2, Cleansed the data to ensure it was accurate.
3. Segmented the companies into those that met the definition of high-growth companies and those that didn’t.
4. Analysed the data to identify common characteristics that differentiated the two groups.
5. Divided the companies into six scorecards based on their current total assets.
6. Identified which characteristics would differentiate each scorecard and removed other scoring factors. This means we only include statistically significant and statistically distinct characteristics in the scoring model.
7. Established a pass mark for each scorecard, which in turn allowed us to calculate the standardised pass mark of 56.
So, what are the bands, and what do they mean?
Very Likely (65 - 100 ) - The growth score predicts the likelihood that a business will grow based on the similarity of the financial attributes of historic growth companies. Companies within this band are the most likely to grow based on the similarity of the financial attributes of historic growth companies. This means these companies will have healthy liquidity and profitability ratios and will not be in any significant debt.
Likely (55 - 65) - Companies within this band are likely to grow based on the similarity of the financial attributes of historic growth companies. This means these companies may have healthy liquidity or profitability ratios but may be in small amounts of debt. These companies are more likely to grow than not due to a higher similarity to growth companies studied but are not as likely to grow as those in the ‘very likely to grow’ band.
Unlikely (35 - 55) - Companies within this band are unlikely to grow based on the similarity of the financial attributes of historic growth companies. This means these companies will likely not have healthy liquidity and profitability ratios and may be in some debt.
Very Unlikely (0 - 35) - Companies within this band are the least likely to grow based on the similarity of the financial attributes of historic growth companies. This means these companies will have low liquidity and profitability ratios and may be in significant debt, reducing the likelihood of achieving 20% turnover growth.
Most business owners would prefer to work with companies that are going to grow because growing businesses will have a higher demand for your services and are more likely to spend more in the future.
To discover how we can help you grow your revenue and use data to find the businesses you want to work with, book a demo or contact 0330 460 9877.