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Lecture 8 - Credit Analysis & Distress Prediction
Lecture 8 - Credit Analysis & Distress Prediction
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Commercial banks
Other financial institutions
Commercial paper market
Unsecured debt market
Suppliers
Credit history
Cash flows
Collateral
Contingencies
Character of management
Communication
10
Asset protection
Financial resources
Earning power
Management
Debt provisions
Other: Company size, market share, industry
position, cyclical influences, and economic
conditions
11
Rating Grades
Moodys
Highest grade
AAA
High grade
AA
Upper medium
A
Lower medium
BBB
Marginally speculative BB
Highly speculative
B
Default
D
Aaa
Aa
A
Baa
Ba
B, Caa
Ca, C
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13
Cash flows
Corporate strategy
Financial statements
External variables
14
Altman Z-score
15
16
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Working Capital
Total assets
Retained Earnings
X2
Total assets
Earnings before interest and taxes
X3
Total assets
Market value of equity
X4
Book value of liabilities
Sales
X5
Total assets
X1
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19
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Investment factors
Relative liquidity of a firms assets
Rate of asset turnover
Financing factors
Relative proportion of debt in the capital structure
Relative proportion of short term debt in capital
structure
Operating factors
Relative level of profitability
Variability of operations
Problem 5-15
Problem 5-16
Problem 5-17
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