Category: oplon Risk Platform

Debt-capacity automation: the Forecasting-StressTest model for risk prevention

Budgets are the chink in the armor for many companies. 

The variances analysis shows how growth forecasts are often overoptimistic or overcautious, jeopardizing the targets’ achievement and compromising the business strategy. Misesteem the company debt-capacity can be dangerous: for companies, as it can affect their financial health, for investors, as it can generate losses.

Thanks to the application of Artificial Intelligence and Data Science technologies, oplon Risk Platform forecasting model automates the whole financial forecasting and budgeting process. The model performs budget simulation on different growth scenarios, allowing to stress-test key variables in order to define the company's debt capacity and the investment strategy to pursue.

The Forecasting-StressTest model

When drafting the budget, we generally refer to the latest financial statement and to the company’s data history. Yet, without considering external variables like the sector trend, the appraisal is often unrealistic. 

To address the problem, oplon Risk Platform’s forecasting model compares company balance sheet data with the geographical and sector values, aligning the budget to the market trends and thereby increasing the probabilities to achieve the business goals. 

You can simulate budgets up to 5 years.  The models display 3 different scenarios, which show the company guesstimated performances in a positive, negative or neutral trend.

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Risk management features

Although it pursues the company growth, the budget forecast may not lead to an improvement of the company economic-financial health. 

Let’s take an example: to fund a project, it may be necessary to apply for a bank loan. The budget will therefore envisage increased company indebtedness, which can result in an asset imbalance .Checking how the budget strategy can affect the company’s creditworthiness is therefore crucial: for companies, to verify their solvency capabilities and projects’ feasibility, for investors to assess investment’s risks and opportunities.

Together with the budget simulation, oplon Risk Platform provides the credit score and the 1-year probability of default of each scenario. Both values are calculated through MORE, modefinace’s Artificial Intelligence methodology for rating assessment. 

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The forecasting model also allows to stress-test specific variables, in order to define the company's debt capacity. You can perform stress-test of the following variables:

  • Sales
  • Share capital
  • Long-term financial debt
  • Short-term financial debt

The stress-tests can be used for instance to verify how a loan or contraction in sales would alter the company financial status, or to define a UTP (unlike-to-pay) credit management strategy.

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Step by step: how to check companies'short-term debt capacity

To perform a budget simulation, you first need the company’s latest financial statement. The balance sheet data can be download automatically from oplon Risk Platform or uploaded manually.

Click on the “MORE Score” tab to calculate the company’s current credit score. To start the budget simulation, click on the “For-ST” (Forecasting – Stress Test) tab and select the desired year range.

To verify the sustainability of short-term debts, select “Short term debt” from the variables menu and enter the loan amount in the field below.

By starting the simulation, in few second oplon Risk Platform will show the forecast budgets of the selected years for each scenario (growth, stability and downturn).

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