FiND study proves news sentiment as a lead indicator for deterioration in financials

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77% of companies with “below industry average news sentiment” witnessed a deterioration in financials

FiND Credit Risk Early Warning System (EWS) captures company related red-flags through analysis of millions of data points and news. Unstructured data sets such as “news” are an important piece of information that can be consumed in the risk assessment of corporate borrowers.

Our hypothesis is that the news sentiment acts as a lead indicator to the deterioration in the company’s financial performance. To test this hypothesis, we back-tested news data of 2,250+ companies for the year 2016 on the following business rule:

Company’s news sentiment average stays below the industry average for all 4-quarters in CY16

We identified 924 such companies. Then, we checked if there is any deterioration in the quarterly financial performance (measured by the score of financial business rules) for these companies in the next 4-quarters (CY17).

For 77% of companies (714/924), we found that A. The number of red flags on quarterly financials outpaced the number of green flags in CY17 and B. The net score of red flags was lower than minus 10 for all 4-quarters in CY17.

We have highlighted 3 such companies whose news sentiment remained below the industry average for all 4-quarters in CY16.

SPREAD

We have also listed quarterly result charts for these 3 companies which highlight a deterioration in their financial performance in the subsequent quarters.

SML Isuzu

DIC INDIA LTD

SANGHVI MOVERS LTD

Our intelligent EWS application can help lenders to get an early warning about the deterioration in corporate borrowers’ financial profile ahead of time.

To know more about FiND Credit Risk EWS, email us at info@heckyl.com

 

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