CR - Credit Rating Chapter Objectives To understand the...

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Credit Rating
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Chapter Objectives To understand the meaning of credit rating importance of credit rating origin of the concept of credit rating growth of credit rating industry in India rating methodology credit rating agencies in India
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Credit Rating Meaning Assessment of borrower’s credit quality Current opinion of the borrower’s debt service obligations Importance Helps in the development of financial markets Helps investor and lending agencies in their decision-making process A marketing tool for the issuer Affects the quantum of fund flows to a country
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CRISIL: Credit Rating Information Services of India Limited- 1987-1988 ICRA: Investment Information and Credit Rating agency- 1991 CARE: Credit Analysis and Research Limited Fitch-Fitch India- 1993 Prominent Credit Rating Agencies in India
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Rating Methodology Business analysis Industry risk Market position Operating efficiency Legal position Financial analysis Accounting quality Earnings potential Adequacy of cash flows Financial flexibility Management evaluation Track record, goals, philosophies and strategies of management Fundamental analysis Liquidity management Asset quality Profitability Interest and tax sensitivity
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Business analysis Business analysis Industry risk –covers an analysis of actual and estimated demand /supply ,number of firms and potential entrants in the industry ,govt policies related to the industry,performance of industry and the future potential Market position-study of market share of the firms,market arrangement,products and customers. Operating efficiency-study of the prod.process of the firm,its cost structure locational advantages etc. Legal position-a study of the prospectus,accuracy of information &filing of forms,returns and so on.
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Fundamental analysis Fundamental analysis Liquidity management- can be known through a study of capital structure ,matching of assets and liabilities, liquid assets, maturing deposits etc. Asset quality- the company’s credit mgt, policies for monitoring credit, composition f assets. Profitability- profitability ratios etc. Interest and tax sensitivity- in terms of exposure to interest rate charges, tax provisions, etc
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Rating Symbols AAA, AA, BBB, B, C, D Symbols convey safety grade to the investor Three grades High investment grades Investment grades Speculative grades
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CR - Credit Rating Chapter Objectives To understand the...

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