10 Feb 2012 18:00

Interfax launches second generation Due Diligence Index

The Interfax Group, which began calculating its Due Diligence Index (DDI), assessing company reliability, a year ago, has switched to a new and improved method.

Analysis of the second version of the index (DDI-2), which was developed with the Value-based Management Institute, a leading analytical center working with modern economic-mathematical models, provides a 5%-7% reduction in scoring error.

In contrast to DDI-1, the selection of companies on which the scoring model is based has increased from 3,000 to 236,000. This enabled the number of factors taken into account when determining the index to be raised from 9 to 20 for companies with financial reports and from 4 to 10 for companies without financial reports.

"The Due Diligence Index is widely used by customers of companies in Russia‘s largest company system SPARK, which was created by Interfax, and has been commended by professionals. The experience we have gathered in applying the index, in creating on the basis of SPARK a constantly operating stand for modeling and mathematical analysis, expanding teams of specialists - all this has enabled us to bring the project to a new level of development," Interfax Deputy General Director and head of the SPARK project Roman Laba said.

"In calculating the new DDI-2 we used a more complex mathematical model, enabling us to identify non-linear dependence - this is a logistical neural network of neurons. The accuracy we have achieved is no worse and may even be better than foreign analogues. We plan to carry out quarterly calibration models taking into account new data and annually update the Index model," Value-based Management Institute General Director Ilya Munerman said.

The DDI measures on a scale of 1 to 99 the risk of a company being a fly-by-night company, not having assets or whether it was not created for its charter purpose.

The index, which was developed after looking widely at international experience and the specifics of Russian business, covers over 3.5 million commercial structures in Russia. The index places each company, according to D&B scoring standards, in one of five risk categories.

The index is important for Russia because of the significant charges applied by tax authorities associated with claims that a company has not exercised due diligence when selecting a counterparty and that counterparty has turned out to be a fly-by-night company. Thus, fly-by-nights and transaction companies represent a threat to law-abiding businesses not only in terms of the threat of fraud but also in terms of the tax implications.

In addition, the huge number of fly-by-nights has not allowed the calculation of average reliability indicators by sector or by region for financial analysis.

The Due Diligence Index in 2011 received the annual prize for Excellence in Innovation, awarded annually by D&B Worldwide Network, which brings together business information suppliers from dozens of countries.
*** The SPARK information and analytical system (www.spark-interfax.ru), developed by Interfax, is a universal solution that enables companies to manage risks, assess the reliability and creditworthiness of other companies, analyse market conditions and assess the investment appeal of different businesses.
The system contains all available data about legal entities in Russia, Ukraine and Kazakhstan. It contains data from over 20 different sources, including government agencies, courts, the media and the companies themselves. Through unique analytical instruments, designed for working professionally with information, SPARK helps increase the speed and quality of credit, financial and marketing solutions.
The number of SPARK searches doubled in 2011 and reached 16 million. SPARK users reviewed 40 million company files, 150% up on 2010. System volume increased from 2.4 terabytes to 3.7 terabytes.
SPARK achieved new sources of information over the past year: information on domains, data from the Ukrainian State Securities and Stock Market Commission and the Kazakh Financial Reporting Depository.
The SPARK system contains data about 20.6 million companies and individual entrepreneurs in Russia, Ukraine and Kazakhstan, compared to 16.2 million a year ago.