RealRate’s Mission: Fair Company Ratings

Remember the financial crisis of 2008?

Well, it was also a ratings crisis: ratings agencies reduced their ratings only months after the stock market crashed. This was a disaster for investors and consumers. There was an inherent problem, a huge conflict of interest: rating agencies were under pressure to give good ratings, otherwise they wouldn’t be hired again.

And that’s how a $10 billion industry works. It’s like a student paying his teacher to give him or her a good grade…RealRate is here to change all that!

Instead of a slow, biased, and expansive human-driven rating process, we use artificial intelligence to create fair and unbiased company ratings. And we make AI explainable, so there is no black box with RealRate.

With AI popping up everywhere, it’s becoming increasingly important that people can trust it.

This is how we do it: we feed in annual report data, so we limit ourselves to public information and audited data. We employ a mix of an expert system and AI. The expert system encodes how key figures combine to yield financial strength.

The AI part learns parameters so that observed stock prices are well explained. We never rate just one company; we always rate all the companies in a sector. For example, take a look at our latest ranking of the US Consulting industry:

We looked at 30 listed US consultants, of which only seven received the RealRate Top Rated seal.

Analyzing these companies, for example Hackett Group Inc, who ranked 2nd out of 30, can be done in just two minutes, instead of having to read a 200-page annual report. And as you can see, Hackett has a large amount of revenue from contracts with clients (the green node), which is their greatest strength, compared to the industry average. However, they suffer from high costs associated with these revenues (the red node). Overall, their economic capital ratio is 139 percentage points above the market average. This is the causal graph we invented to make AI explainable. One more step towards realizing our vision.