Financial Health

Financial Health is the most important step in the stock research process. It forms the foundation of the Lincoln investment process and is what sets Stock Doctor apart from other stock market research software.

Financial Health

Lincoln's Financial Health model assesses key accounting ratios relating to each company's profitability, cashflow, liabilities and assets. It then determines a Financial Health score commensurate with the business risk of the company so you can quickly identify stocks that warrant further consideration and eliminate those that don't. This means you can concentrate on stock selection rather than stock analysis.

Stock Doctor quickly and accurately screens every ASX listed stock for Financial Health and highlights companies showing signs of financial distress. This way you can quickly assess which stocks warrant further investigation and exclude those that don't.

Stock Doctor's Financial Health model is derived from Dr Merv Lincoln's extensive academic research into the relationship between key accounting ratios and insolvency risk. Dr Lincoln developed a unique combination of ratios to identify potential insolvency risk after analysing thousands of failed and successful companies over three economic cycles encompassing almost ten years. Dr Lincoln's son, Tim, continues to drive the succession of his academic work through Neville Norman and other academics employed in the business to continually test the academic rigour.

Tested and refined under the guidance of Associate Professor Neville Norman, the Financial Health model is just as effective today as it was when developed more than twenty years ago. In fact, research confirms Stock Doctor's Financial Health methodology accurately identified more than 95 per cent of failed businesses before they went bankrupt.

Learn more about Lincoln's Financial Health in this video

Stock Doctor classifies companies into five financial health levels

Financial Health rating What it means
Strong Satisfactory Company's balance sheet has sufficient borrowing capacity and adequate cash levels to finance growth. Consistent profits have produced strong operating cash flows underpinning company's operational strength.
Early warning Company is neither satisfactory or unsatisfactory. May suffer financial stress unless measures are implemented to rectify financial health standing.
Marginal Financial risk exposure has increased. Needs to improve profitability, increase cash flows and lower debt levels if it is to remain a viable business.
Distressed Displays qualities of failed entities. High level of financial risk exposure with substantial weakness likely across profit & loss, balance sheet and cash flow statements. Substantial changes needed to remain an ongoing entity.