Basic Credit Analysis

Credit analysis is increasingly important in an environment of scarce liquidity. This program aims to introduce the concepts of credit analysis. There is an explanation of credit-specific terminology and how it is used. There is an introduction to the rating agency process and how it works. The course covers the main credit ratios used in ratings analysis. Drill questions enable the participants to develop credit ratios and to estimate a credit rating for a hypothetical non-investment grade company.

Overview

• The credit view, assessing debt service capability
• What is the debt that needs servicing?
• Understanding the trading cycle and the effect on cash flow
• The financing gap caused by working capital needs

Definitions of cash

• Operating cashflow
• Funds from operations
• Free operating cashflow

Sources of cash

• Operations
• Asset sales
• New debt issues
• New equity issues

Cash volatility

• Fixed costs
• Variable costs

Credit ratios covering the following areas

• Profitability
• Liquidity
• Leverage
• Coverage
• Efficiency
• Operating leverage
• Calculating breakeven

Ratings

• The ratings process
• Surveillance
• Outlook