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UK Credit Reports
Explanations of Credit Report Calculations

Risk Scores | Credit Limit | Contract Limit | Auditors Qualifications | Companies Registration Number Alpha Pre-fixes | Download this page as PDF

Risk Scores

A unique predictive scoring model has been developed aimed at enabling you to detect those limited companies at risk of corporate failure within the next 12 months.

How We Built The Score

In developing the score, the database was split into two samples, those companies with a turnover above £1 million and those below. The main reason for this was that it was felt that smaller companies, especially those filing modified accounts, may well exhibit different characteristics to larger companies.

We were keen to develop a performing risk model which took into account all possible influential criteria whatever the size or business activity of the company. To this end, historical data was taken to identify the two sample sets - companies which had become involuntarily insolvent and companies which had continued to trade.

Up to ten years worth of financial data was analysed to identify patterns and trends - ratios were compared against industry sectors, and county court judgements and audit qualifications were also taken into account.

The strongest criteria were then applied and tested against further random samples. At the end of the exercise a robust set of elements were firmly identified for building the score calculation.

Quick Reference Guide To The Score

The new score measures all companies against the proven criteria identified. As a rough guide to what the score means the following table provides a quick look up for assessing how any company ranks against the average risk rate.

Credit Limit

The Credit Limit is an absolute measure of a company's ability to settle potential credit transactions. UK Data Ltd currently gauges the ability by use of the following three values :-

Cash Flow - This is calculated as the Pre-tax Profit of the company plus Depreciation charged against that Profit.

Working Capital - Calculated as the difference between the Total Current Assets and Total Current Liabilities.

Net Worth - Calculated as the Total Assets minus the Total Liabilities where the former is also adjusted to eliminate any Intangible Assets.

The average of these 3 components is then taken as a guide for the credit capacity of the company. The final figure calculated will depend on the previously derived Credit Score. The % applied is directly proportional to credit score, i.e. the greater the score the higher the %. The % applied ranges from 2 to 20.

There are exceptions to this formula which are industry specific.

There are some companies that will not have a credit limit attached. These companies will have scored below 15 or alternatively all elements from the balance sheet and cash flow will be negative.

Credit Limit Period

The credit limit should be regarded as a yardstick for the possible level of acceptable credit, or alternatively the maximum amount one is happy to be owed by an applicant at any one time. It has no time period in consideration, it is advising an overall credit amount. If you have any questions, please call 01372 750800.

Credit Limit calculation (How the “average” works)

If the WC or C/F from operations is negative then it is assigned as zero when the average of the 3 values is calculated but NW is always treated as a genuine absolute. Also note that Net Worth from an ICC perspective may differ from the disclosed value on a set of accounts because intangible assets are excluded. If the average of the 3 figures is positive, then a limit will be given but if the overall average is negative, the limit will be zero. Please note that on Subset (the smaller companies on the database) we do not have C/F details, hence the average will be based on 2 values (NW & WC). On Superset the CF details are not always given, hence an estimate (Profit + Depreciation) is used instead. Example to illustrate the above:

NW = +100, WC = -50, C/F from Ops = +80. The average = (100 + 0 + 80)/3 = +60. The limit is then taken as a % of 60.
NW = -120, WC = +50, C/F = +40. The average = (-120 + 50 + 40)/3 = -10. Because the overall average is negative, the limit will be zero
NW = -120, WC = +100, C/F = +50. The average = (-120 + 100 + 50)/3 = +10. The limit is then taken as a % of 10.

Note:

Any intangibles are deducted from the stated figure. However, we do show the data on our analysed Balance Sheet in line with the original presentation. We believe that such assets should be disregarded when assessing the credit worthiness of a company. Also note this is standard practice in the industry

Contract Limit

The contract limits are calculated as a percentage of Turnover. The latest disclosed Turnover reflects the level of successful contracts completed, hence gives an indication of future capacity.

Where Turnover is not disclosed (Abridged Accounts), an estimated figure is used based on asset values and appropriate industry data. This measurement views the applicant as a supplier of goods and services, whereas a credit limit assesses the applicant as a purchaser.

No Risk Score / No Credit Limit ?

Not all businesses will be scored or have limits. This depends on the information available.

No Score and No Limit ?

Where a company has no risk score or credit limit, it can be due to one or more of following reasons :-

- There is insufficient information on a business
- The business has more than 4 outstanding County Court judgements in the last 6 months and less than 25 employees
- The value of CCJs is greater than £2,000 in the last 24 months
- There have been more than 3 CCJs in the last 12 months
- There are more than 10 CCJs in total

No Limit ?

Where a company has no risk score or credit limit, it is likely to be due to the following reasons :-

- There is not enough information to estimate financial strength
- The business is engaged in certain financial activities, making an estimate of financial strength inappropriate

County Court judgements

Information is received from the Registry Trust about County Court judgements or Scottish Decrees brought against companies for non-payment.

The matching is done on name only and shows exact, probable and possible matches. A judgement must be paid within a month of being issued. If the judgement is paid off within the month it is removed and will not be shown in the report. If the judgement is paid after one month then the details remain on the system but will show the judgement as satisfied.

UK Data Ltd shows the total number of CCJs, the total amount owed and also a cumulative total over 3 month intervals. Details confirming the date, amount, court, case number and reference number are given for the latest 10 judgements.

Auditors Qualifications

Auditors can qualify their audit, if they have any concerns. There are five levels of qualification, with five being the severest and most alarming. Please note that levels four and five do impact upon the UK Data Ltd risk score.

The Five Levels Of Audit Qualification

Level One - "Although the Auditors have not qualified their opinion on the accounts for DD/MM/YY, it should be noted that they may have drawn attention to certain matters. Such matters may impact upon aspects of the financial results."

Level Two - "The Auditors have qualified their opinion on the accounts for DD/MM/YY. The qualification relates to scope limitation, which may include valuation of stock. Such matters may impact upon aspects of the financial results."

Level Three - "The Auditors have qualified their opinion on the accounts for DD/MM/YY. The qualification relates to uncertainty or disagreement of a material but not of a fundamental nature, or to items which effect the profit and loss account only. Such matters may impact upon aspects of the financial results."

Level Four - "The Auditors have either qualified their opinion on the accounts for DD/MM/YY or emphasised a matter of fundamental uncertainty. The qualification/matter specifically relates to the going concern concept, which has only been adopted assuming certain parties continue their financial support."

Level Five - "The Auditors have qualified their opinion on the accounts for DD/MM/YY. The qualification relates to items of uncertainty or disagreement of a fundamental nature or is a multiple qualification. Such matters will impact upon aspects of the financial results."

Company Type

1. Private Limited with Share Capital - Private limited company with issued share capital. Will file accounts.

2. Private Limited company without share capital - Private limited company without issued share capital - will file accounts.

3. Private Company Limited by Guarantee - A privately limited company with no issued share capital. It is only liable for the amount of the guarantee stated by the members. This is a common way for a charity or non-profit making organisation to operate.

4. Private Unlimited with Share Capital - Company has registered its name at Companies House, but there is no limited liability. The company members are liable only up to the amount allotted in share capital.

5. Private Unlimited without share capital - Private Unlimited company, the company members have no limited liability and are not obliged to file accounts.

6. Public Limited with Share Capital - Public limited company with issued share capital. Will file accounts.

7. Limited Partnership - Limited Partnership has registered its name with companies house, but will not file any accounts.

8. Company converted closed - No accounts filed.

9. UCITS - Undertakings for Collective Investment in Transferable Securities. Sole object is the collective investment in transferable securities of capital raised from the public. Operate on the principle of spreading risk.

10. EEIG - European Economic Interest Groupings. Does not itself record a profit or loss, with profits and losses returned to individual members. The company will co-operate across national frontiers within the EU. May not have more than 20 members, not permitted to invite investment from the public.

Companies Registration Number Alpha Pre-fixes

There are several alpha pre-fixes which are attached to company registration numbers. These are descriptive codes indicating the type of company registration. Some of these codes will indicate that UK Data Ltd may or may not have analysed the data field. See below an explanation for the various codes available.