Our Balance Sheet Strength component analyzes a retailer's financial capacity to withstand a material macroeconomic trauma.

Our Balance Sheet Strength component considers how a retailer's capital structure facilitates its ability to service its financial obligations in the event of a hypothetical macroeconomic trauma. First, we calculate each retailer's interest coverage ratio adjusted by a proprietary factor, which we call "Omega". Omega measures a company's sensitivity to changes in the macro economy over time. The RHR will negatively adjust a company's fixed charge coverage ratio if its Omega suggests its sales are highly correlated to changes in the macro economy; a more modest adjustment (or no adjustment) will result for retailers whose Omega shows that its business is not highly correlated to changes in the larger economy.

A second factor considered is the retailer's ability to access the capital markets to raise liquidity in times of crisis or when it is presented with a compelling strategic opportunity (such as an acquisition). Businesses with greater access to the capital markets are credited with greater balance sheet strength than those with less access.