Class 10 Credit Analysis 6-Slides

Class 10 Credit Analysis 6-Slides - Credit Analysis and...

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1 ACCT5910 – Business Analysis and Valuation Class 8: Valuation: Implementation Financial Statement Analysis Class 10: Credit Analysis and Distress Prediction Credit Analysis and Distress Prediction The credit market The credit analysis process Debt rating Predicting financial distress How Big is Australian Credit Market? 53,227 53% 44,712 45% 2,273 2% Debt Markets Currency Market Equity Market 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Debt Markets 21,962 26,394 27,063 33,783 47,640 53,227 Currency Market 19,090 22,685 27,967 33,821 33,001 44,712 Equity Market 915 1,074 1,139 1,323 1,756 2,273 Data source: Australian Financial Markets Association Report 2006 Annual Turnover (in A$ Billion) A. The Credit Market Supply of credit (Lenders) Commercial banks Other financial institutions Public debt markets Sellers (e g manufacturers) who provide finance Sellers (e.g. manufacturers) who provide finance Demand of credit (Borrowers) Government Financial institutions Corporations Individuals B. The Credit Analysis Process Similar to equity security analysis, without explicit valuation 5 general steps Analyze potential borrower's financial status Utilize forecasts to assess payment prospects Assemble the detailed loan structure Nature and purpose of loan is related to underlying risks Consider The required loan amount B1: Consider nature & purpose of the loan The time horizon of the loan Responsible entity (e.g. parent/subsidiary)
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2 B2: Consider type of loan & available security Types of loan: Working capital loans Term loans Mortgage loans Lease financing Hybrid Debt Types of security (Collateral) : B3: Analyze potential borrower's financial status Key question:
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This note was uploaded on 01/27/2012 for the course FINS 5511 taught by Professor Mike during the Three '11 term at South Australia.

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Class 10 Credit Analysis 6-Slides - Credit Analysis and...

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