GOVERNANCE WATCH
By InsidEntity Editorial Desk · Jul 26, 2026 · 6 min read
A governance score answers one question: who is watching, and how did they get the seat. It has never answered a second, equally basic question: is the company itself financially sound. InsidEntity’s Company Risk Rating has always been explicit about that boundary. Four pillars, all of them about board composition, none of them about the income statement or the balance sheet. That boundary was the right one for what the CRR set out to do. It is also the reason InsidEntity is introducing a second, separate rating alongside it: the Financial Stability Rating (FSR).
Why now
The immediate trigger is a pattern this platform keeps running into across its own governance coverage: a company can carry a strong board-composition rating in the same month a credit-rating agency moves its debt a notch closer to junk, and both numbers are correct, because they measure different things. A governance score describes who is watching; it does not describe what they are watching for. That gap is not unique to InsidEntity, and it is not going away on its own. It is exactly the kind of gap a second, purpose-built rating exists to start narrowing.
The FSR is that instrument’s first release. It will not be the last word on financial soundness, and it is important to say plainly what it does and does not do before a single company gets a score.
What the FSR measures
Version one is built from five indicators, each contributing one point toward a five-point score:
| # | Indicator | Threshold | Basis |
|---|---|---|---|
| 1 | Revenue growth | Increasing by at least 2% in each of the past 3 years | Proportion per year: each of the three years that clears the bar contributes a third of the indicator’s point |
| 2 | Net profit after tax (NPAT) | At least 5% margin in each of the past 3 years | Proportion per year: each of the three years that clears the bar contributes a third of the indicator’s point |
| 3 | Net asset value (NAV) | Positive in each of the past 3 years | Proportion per year: each of the three years that clears the bar contributes a third of the indicator’s point |
| 4 | Current ratio | At least 1.5x in each of the past 3 years | Proportion per year: each of the three years that clears the bar contributes a third of the indicator’s point |
| 5 | Cash ratio | Total expenses ÷ total cash, 2x or below | Binary, current year only: the full point if the ratio clears 2x, none if it doesn’t |
The first four indicators look for a three-year pattern rather than a single snapshot, which is a deliberate choice: a company can post one good year on any of these measures, but sustaining revenue growth, profitability, positive net assets, and adequate liquidity across three consecutive years is a materially harder bar to clear, and a much better signal of underlying financial health than any single year in isolation. Credit accrues per year rather than all-or-nothing: a company that clears the bar in two of the past three years earns two-thirds of that indicator’s point, not the full point and not zero. A single bad year still costs something, it just doesn’t erase the other two.
The fifth indicator is built differently on purpose. Cash ratio is a present-tense check on cash runway relative to the cost base, and unlike the other four, it is a single-year, pass/fail test: the point is awarded in full if the ratio clears 2x in the current year, and withheld entirely if it doesn’t, with no averaging across prior years to soften a bad one.
Put together, the FSR answers a straightforward question: based on what the company has reported about itself, is it growing, profitable, solvent, and liquid, consistently, not just in the year it chose to highlight.
What the FSR does not do, and will not do at launch
This is the part worth being as direct about as the governance gap above. The FSR reads the company’s own reported, consolidated financial statements. Every one of its five indicators is a number that comes off the parent entity’s income statement and balance sheet.
That means the FSR, in this first version, does not look inside a joint venture, a variable interest entity, or an unconsolidated project-financing vehicle. Any company financing a meaningful share of its operations through an off-balance-sheet structure can, in principle, still show a strong current ratio, a clean NAV trend, and healthy cash coverage on its own consolidated statements, because the debt in question was structured specifically not to appear there. The FSR would not catch that on its own, and it would be dishonest to launch it implying otherwise.
What the FSR does do is close a different, more foundational gap: today, InsidEntity has no financial-health signal at all sitting next to its governance signal. A company with a Benchmark board and a deteriorating income statement currently gets no flag from this platform on the second half of that picture. The FSR fixes that half. Off-balance-sheet, VIE-level, look-through analysis is the next problem, not this one, and it will likely need its own instrument again, built specifically to consolidate lease and SPV exposure the way today’s accounting standards allow companies not to.
How to read a company with both scores
The two ratings are meant to be read side by side, not combined into one number. A company can reasonably carry a high CRR and a low FSR: well-governed, financially strained. Or the reverse: thin board oversight, strong financials. Neither combination is a contradiction; each is exactly the kind of pairing the two-instrument approach is designed to surface rather than average away. As more companies carry both scores, the pairs themselves will become one of the more interesting datasets on the platform: where governance quality and financial soundness move together, and where they don’t.
What’s next
The FSR launches with these five indicators and will be refined the way the CRR has been: methodology published, scores updated as new filings land, gaps named rather than smoothed over. The most important gap to name today is the one above: this version reads what a company reports about itself, not what a joint venture reports about the company. Closing that second gap is the honest next step, not a claim this release is making yet.
A governance score tells you who is in the room. The Financial Stability Rating tells you whether the numbers they are reporting hold up over three years, not one.
About InsidEntity’s ratings
InsidEntity has measured governance structure and quarterly self-disclosed status since the platform’s founding, through the Company Risk Rating (CRR), scoring governance across four pillars weighted 40/20/20/20, and the Health Status Rating (HSR), a quarterly, company-submitted check against ten specific risk triggers. The Financial Stability Rating (FSR), scoring financial soundness across five indicators as set out above, is the newest addition to that set. Each rating answers a different question about a company, deliberately, rather than folding every signal into one score. Explore ratings across 145 stock exchanges at InsidEntity.
Know your entity. This article introduces the Financial Stability Rating ahead of its first company scores appearing on the platform. This is independent research, not financial advice.
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