Your Financial Health Rating (FHR) is a single number from 0 to 100. But the number by itself doesn't tell the whole story. It also places your company into one of five risk categories, which is what most clients, partners, and lenders actually look at first. This article walks through what those categories mean, what sits behind them, and, just as importantly, what they don't mean about your business.
First, some context
An FHR is one input among many that a client or partner uses when deciding to work with you. It reflects your company's financial statements at a specific point in time. A lower category doesn't mean you're not a viable partner. It means there's a story behind the numbers, and this article, along with the rest of this section, is here to help you understand and tell that story.
The five risk categories
Every FHR falls into one of five categories, each with its own FHR range and associated Estimated Probability of Default (EPD), which we'll explain in a moment:
Risk Level | Very High Risk | High Risk | Medium Risk | Low Risk | Very Low Risk |
FHR Range | 0 to 19 | 20 to 39 | 40 to 59 | 60 to 79 | 80 to 100 |
EPD | More than 13.3% | 11.4% to 1.0% | 0.89% to 0.11% | 0.10% to 0.008% | Less than 0.007% |
One important thing to know: these categories exist on a continuum, not as a pass/fail line. Moving from the top of one category to the bottom of the next doesn't happen overnight, and small movements in your financials can shift your score without changing the underlying health of your business in any dramatic way.
In plain terms, each category generally reflects:
Very Low Risk: strong financial position across the board, with very low modeled likelihood of financial distress in the near term
Low Risk: solid financial footing, with capacity to absorb typical business shocks
Medium Risk: a mixed or transitional financial position, some strengths and some areas worth watching
High Risk: meaningful financial pressure in at least one area that's worth addressing proactively
Very High Risk: significant financial strain across multiple areas
What sits behind the category: Estimated Probability of Default (EPD)
Alongside your FHR, you'll also see an Estimated Probability of Default (EPD), a modeled percentage that reflects the likelihood of financial distress over the next 12 months, based purely on the patterns in your financial statements.
This can sound more alarming than it's meant to be, so a bit of context: EPD is a statistical estimate drawn from patterns across tens of thousands of companies over 40+ years, not a prediction specific to your company, and not a judgment call by an analyst. It's the same kind of modeled estimate used throughout commercial credit and risk assessment, and the vast majority of companies, even those in the Medium Risk range, carry very low EPD values in absolute terms.
One useful reference point: at an FHR of 40, EPD is roughly 1%. At an FHR of 60, it's roughly 0.1%. In other words, even a ten-fold difference in modeled default likelihood can sit within a relatively narrow band of the FHR scale. Small movements in your score don't necessarily mean large movements in actual risk.
The most closely watched boundary
Of the four boundaries in the table above, the one between Medium Risk and High Risk, at FHR 40, gets the most attention in the model. Default likelihood begins increasing more quickly below this line: once a company's FHR drops below 40, modeled default risk increases geometrically, roughly doubling with each 5-point decline.
This is exactly why the Why Did My FHR Change? article in this section is worth reading if your score is near this line. Understanding what's driving your number matters more than the category label itself.
What to do next
To understand why your score sits where it does, see Why Did My FHR Change?
To see the specific ratios and categories behind your Core Health Score, see Ratios & Performance Categories
To see how planned changes to your business could affect your rating, explore ActionPath. It lets you model "what if" scenarios and show your progress to clients even before your next official rating update
If you believe a specific line item was misclassified, see Correcting Misallocated Line Items
Your FHR is a snapshot, not a verdict. It's one you have real, direct ability to influence over time as your financials evolve.