Risk level: what it means and how to read it

What is Risk level?

Valarth's overall forensic label: Clean, Watch, Caution, Danger or Avoid.

A worked example

A company with clean cash flows, no pledge and steady auditors is Clean. Profit rising while cash flow falls, plus a high pledge, moves it towards Caution or Danger.

Why does Risk level matter?

A plain summary of what the forensic checks found.

How do you read Risk level?

Clean and Watch are the calmer end. Read the flags behind any label.

A fact about the company, not a score.

The values it takes

CLEANWATCHCAUTIONDANGERAVOID

Can I trust the numbers?

Forensic checks for accounts that look better than the business really is.

More in Is It Trustworthy?

7 lessons

Green minus red flags

Valarth runs 15 green checks and 15 red checks on each company. This is the number of greens minus the number of reds.

Magic formula rank

Joel Greenblatt's ranking: companies scored on both earnings yield and return on capital. 1 is the best combination.

Accruals quintile

Groups companies into 5 bands by how much of their profit is backed by cash: 1 is best backed, 5 least.

Montier C-score

Counts 0 to 6 signs that accounts look better than the business, such as profit rising while cash flow falls, or receivables piling up.

Beneish manipulation flag

Yes when the Beneish M-score is above −1.78 even after setting aside fast sales growth, which can trigger the score on its own.

Beneish M-score

A score from 8 accounting ratios that estimates whether profits may have been inflated.

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