Understanding the H-Score®

H-Score® is the industry-leading performance tool when it comes to predicting likely business failures.

What is an H-Score®

The H-Score® looks at a company’s published financial results in order to measure its financial health. The H-score® measures a company’s overall health, the higher the score the better. Companies are ranked on a scale of 0 (weakest) to 100 (strongest).

Seven factors are combined to establish the H-Score®

Warning Area

Companies with an H-Score® of 25 or less are in the ‘Warning Area’ and are displaying characteristics of companies that historically go on to fail. Typically, about one in four companies in the ‘Warning Area’ will either fail or require a major reconstruction to survive.

It is rare for companies to fail or experience major distress as long as their H-Score® remains outside the Warning Area.

Not all companies in the Warning Area will fail. But of those that do, the vast majority were in the Warning Area before they collapsed.

Intangible Assets

The H-Score® does not give value to intangible assets (usually goodwill, but can also include trademarks, brand names etc.) because the core value of these items is regarded as being inconsistent.

Handling abridged accounts

We only consider financial information in the public domain such as accounts filed at Companies House. However, ‘Small Companies’ (defined as companies which do not exceed more than one of: £10.2m sales, £5.1m total assets, 50 employees) and 'Micro Entities' (defined as companies which do not exceed more than one of: £632k sales, £316k total assets, 10 employees) are allowed to file abridged accounts (balance sheet only, no P&L).

When the H-Score® is calculated, assumptions about profits are made by using the year-to-year movement in retained profits as disclosed in the balance sheet. If a dividend is paid, this may cause a negative movement in retained profits, which may have a significant negative impact on the H-Score®.