Yes. Every company that receives a client request must be rated on its own financial statements, and private equity-backed companies are assessed on the same quantitative basis as every other company on the FHR Exchange. Sponsor backing is neither a positive nor a negative factor, and it does not substitute for the operating company demonstrating its own financial health.
The rating reflects the operating company, not its owners
The Financial Health Rating measures the financial condition of the entity that will be transacting with the client. A sponsor's capital commitment, reputation, or balance sheet is not a proxy for the portfolio company's ability to meet its obligations, and clients requesting a rating are asking about the counterparty they are contracting with — which is the operating company itself.
Ownership structure is not an input to the methodology. The FHR is calculated from the figures on the operating company's financial statements, using ratios benchmarked against industry peers. It does not apply adjustments — positive or negative — for sponsor backing, leverage from a buyout, cash sweep provisions, or ease of access to sponsor capital. Two companies with identical financial statements produce identical ratings regardless of whether one is sponsor-backed and the other is founder-owned.
Every company on the FHR Exchange is rated on the same terms, using the same ratios, benchmarked against the same industry peers.
How the methodology handles the concerns PE-backed companies typically raise
Private equity-backed and sponsor-backed companies most often ask this question because of concerns that non-cash expenses, goodwill amortization from acquisitions, or the debt load from a leveraged buyout will produce a misleading result. The methodology addresses these in two ways:
Industry-normalized ratios. Every ratio is benchmarked against the industry the company operates in. Industries with structurally higher leverage or heavier non-cash charges are evaluated against peers with the same characteristics rather than against a universal standard.
Period-by-period assessment. Each annual period is assessed on its own financial statements. A single year that includes an unusual non-cash charge does not permanently affect subsequent ratings, and multi-year trends are visible to the client alongside the current score.
Using ActionPath to add context
ActionPath is the tool designed for exactly this situation. It allows the member to model pro forma scenarios — adjusting specific line items such as non-cash expenses, debt service, or capital structure changes — and see the projected impact on the Financial Health Rating.
For PE-backed members, ActionPath provides a structured way to show a client what the rating would look like under an alternative view of the financials, without asking the client to disregard the underlying methodology. This is more effective than a written explanation because it produces a modeled result the client can evaluate on the same terms as the original rating.
What to submit
Submit the standard required financial data: balance sheet and income statement (plus cash flow statement if produced) for annual periods dated within the last twelve months. Unaudited, internal, and draft statements are accepted. No additional documentation about sponsor backing, capital structure, or ownership is required or used.