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26 Cards in this Set
- Front
- Back
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Five C's of Credit Analysis |
Capacity Collateral Character Conditions Capital |
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Types of Risk |
Internationall Domestic Industry Firm-Specific |
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Short-Term Liquidity Risk |
The near term ability to generate cash to service working capital needs and deb service requirements |
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Long-Term Solvency Risk |
The longer-term ability to generate cash internally or from external sources to satisfy plant capacity and debt repayment needs |
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Credit Risk |
A firm's ability to make payments on itnerest and principle payments |
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Bankruptcy Risk |
The likelihood that a firm will be liquidated |
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Accuracy Problems |
Changes outside of the company's control Based point in time Analysis Accuracy of Numbers Appetite of Risk Using Historical Data to Predict the future Fraud |
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Rating Agencies |
Standard and Poor's Moody's Fitch Thomson Bank Watch |
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Current Ratio |
Current Assets / Current Liabiilities (Ratio > 1.0 preferred) |
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Quick Ratio |
Current Assets - Inventory / Current Liabilities (Should trend towards .5) |
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Operating Cash Flow Ratio |
Cash Flows from Operation / Average Current Liabilites |
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Debt Ratio |
Total Liabilities / Total Assets |
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Capitalization Ratio |
Total Assets / Total Shareholders' Equity |
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Debt to Equity |
Total Debt / Total Shareholders' Equity |
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Times Interest Earned |
EBIT / Interest Expense + Interest Capitalized |
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Z-Score - Calculation |
1.2 (Working Capital / Total Assets) 1.4 (Retained Earnings / Total Assets) 3.3 (EBIT / Total Assets) 0.6 (Market Value of Equity/Book Value of Liabilites) 1.0 (Sales / Total Assets) |
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Z-Score - Meaning |
Z < 1.8 - Firm is likely to go bankrupt 1.8 < Z < 3.0 - Grey Area, firm could be in trouble Z > 3.0 - Firm is not in danger of going bankrupt |
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Rate of Return on Assets |
ROA = Net Income + Interest Expense x (1 - Tax Rate) + Minority Interest in earnings / Average Total Assets |
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Gross Profit Margin |
Gross Profit / Net Sales |
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Profit Margin |
Net Income / Net Sales Revenue |
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Receivables Turnover |
Net Sales Revenue / Average Receivable Balance |
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Inventory Turnover |
Cost of oods Sold / Average Inventory Balance |
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Total Asset Turnover Ratio |
Net Sales Revenue / Total Assets |
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Turnover of Fixed Assets |
Net Sales / Fixed Assets |
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Return on Common Shareholders' Equity |
ROCE = Net Income to Common Sharehollders / Average Common Shareholders' Equity |
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Asset Turnover |
Sales / Average Total Assets |
