212MTAMount Durham University Bachelor's Diploma in Technology
Creditrating-vcssgoc
1. What is a Credit Rating?
Current opinion on credit quality
- Issuers’ ability and inclination to meet
debt obligations in a timely manner
Performs isolated function of credit risk
evaluation
Rating is an issue specific view
Useful in differentiation of credit quality
2. What a Credit Rating is Not
General purpose evaluation of issuer
Audit of the issuing company
One time assessment valid over life of the
instrument
A recommendation to purchase, sell, or
hold a security
3. Debt Markets in India
Administered
Interest Rates
Protected Business
Environment
Market Driven
Interest Rate Structure
Liberalisation
Assessment of Risk Critical
4. Benefits of Ratings
Regulatory Authorities
Investor protection
Market discipline
Issuers
Accessibility to wider investor base
Encourages financial discipline
Lesser known companies can raise funds
more optimally
5. Benefits of Ratings (contd.)
Intermediaries
- Fixing coupon rates
- Second opinion to supplement own
assessment
Investors
- Eases risk identification and
diversification
- Improves liquidity of security
8. Industry Risk
Industry Structure
Industry size and importance to economy
Determinants of revenue growth
Entry barriers
Extent of Competition
Nature and basis of competition
Threat from imports and substitutes
Presence of unorganized sector
9. Market share
Competitive advantages
Brand equity
Pricing flexibility
Product and customer diversity
Proportion of exports
Nature & type of customer diversity
Market Position
11. Financial Risk Analysis
Accounting Quality
• Income recognition
• Expense capitalisation
• Depreciation and inventory valuation
policies
• Off-balance sheet and contingent
liabilities
• Non-operating income
12. Earnings Protection
- Profitability measures
- Interest coverage
- Capital structure
- Debt service coverage
- Working capital indicators
- Return on capital employed
Financial Risk Analysis
13. Adequacy of Cash Flows
- Debt servicing requirements
- Sustainability of funds from operations
Financial Flexibility
- Ability to raise equity and debt funds
- Alternatives in times of stress
- Liquid assets available
Financial Risk Analysis
14. Management Evaluation
Strength of linkage to parent/ group
- Operational, financial, managerial support
Systems and track record
- Project implementation record
Management talent and succession
Financial Policies
- Attitude to growth and debt orientation
15. Project size in relation to existing
operations
Means of financing
Funding tie-up
Extent of completion
Adherence to implementation
schedules
Project Risk