登录查看更多内容

How do investment bankers assess creditworthiness in the current market?

由人工智能和领英社区提供技术支持

Creditworthiness is the ability of a borrower to repay debt obligations on time and in full. It is one of the most important factors that investment bankers consider when evaluating potential deals, especially in the current market, where uncertainty and volatility are high. In this article, you will learn how investment bankers assess creditworthiness using various methods and tools, and what challenges they face in the process.

此文章中的业界达人

由社区从 8 条内容中精选。了解更多

CA Deepak Garg

CA | CPA | EY | Ex-KPMG | Ex-Ministry of Commerce | Management Consultant
Karanjeet Singh, ACA, CFA, MBA

Partner - Investment Banking | Instagram: _karrancy
Kushal Kumar K.

At Job - CFO & GBS Advisory | Business/Finance/Digital Transformation | Management Consulting | Thought Leadership In…

1 Financial ratios

One of the most common and basic ways to measure creditworthiness is to use financial ratios, such as debt-to-equity, interest coverage, leverage, and liquidity ratios. These ratios indicate how much debt a company has relative to its equity, how well it can service its interest payments, how much risk it is taking on, and how easily it can access cash or liquid assets. Investment bankers use these ratios to compare different companies within the same industry or sector, and to benchmark them against industry standards or historical averages.

添加您的观点

CA Deepak Garg

CA | CPA | EY | Ex-KPMG | Ex-Ministry of Commerce | Management Consultant
举报内容
Investment bankers assess creditworthiness in the current market primarily through financial ratios. They analyze key ratios such as leverage ratios (debt-to-equity, debt-to-assets), liquidity ratios (current ratio, quick ratio), profitability ratios (return on assets, return on equity), and efficiency ratios (asset turnover, inventory turnover). These ratios provide insights into a company's financial health, risk profile, and ability to meet its debt obligations. By comparing these ratios with industry benchmarks and historical trends, investment bankers can gauge the creditworthiness of a company and make informed decisions regarding financing or investment opportunities.

已翻译

赞
Karanjeet Singh, ACA, CFA, MBA

Partner - Investment Banking | Instagram: _karrancy
举报内容
In todays age, credit worthiness of a company signifies responsible & efficient financial management. Banks, private equity funds & other lenders use various ratios to analyze the credit worthiness. From experience- Some ratios that I have seen & used while analyzing the creditworthiness of a company are: 1. Interest Coverage Ratio 2. Quick Ratio or Acid-Test Ratio 3. Cash Flow Coverage Ratio 4. Debt Service Coverage Ratio Some investment bankers also use the Altman Z-Score. It combines various ratios to predict the probability of a company going bankrupt.

已翻译

赞
Kushal Kumar K.

At Job - CFO & GBS Advisory | Business/Finance/Digital Transformation | Management Consulting | Thought Leadership In Life - Connoisseur | Music/Singing Enthusiast | Dreamer | Business Coach | Helping Hand
举报内容
In my opinion, and in addition to the above measures two other fundamental aspects of any business can also be a good indicator about credit-worthiness of the business, viz. Cash Conversion Cycle which indicates how effectively and efficiently you are using the credit line available to you to create your inventory and how quickly you convert that inventory back into an available credit line/ cash reserve, the shorter cycle, the better! And the second one being the working capital; the larger working capital indicates you have larger current assets to provide for larger current liabilities. This can be seen thru Current Ratio which would be considered healthy if it is greater than 1.

已翻译

赞

加载更多内容

2 Credit ratings

Another way to assess creditworthiness is to use credit ratings, which are opinions issued by independent agencies, such as Standard & Poor's, Moody's, and Fitch, on the likelihood of a borrower to default on its debt obligations. Credit ratings are based on a comprehensive analysis of various factors, such as financial performance, business model, industry outlook, competitive position, governance, and regulatory environment. Credit ratings are usually expressed as letters, ranging from AAA (the highest) to D (the lowest), and may have modifiers, such as + or -, to indicate the relative position within a rating category.

添加您的观点

加载更多内容

3 Credit models

A third way to assess creditworthiness is to use credit models, which are mathematical or statistical tools that estimate the probability of default (PD), the loss given default (LGD), and the exposure at default (EAD) of a borrower. These parameters are used to calculate the expected loss (EL), which is the amount of money that a lender expects to lose if a borrower defaults on its debt obligations. Credit models can be based on historical data, market data, or both, and can vary in complexity and accuracy. Investment bankers use credit models to price debt instruments, such as bonds, loans, and derivatives, and to manage credit risk.

添加您的观点

4 Qualitative factors

A fourth way to assess creditworthiness is to consider qualitative factors, such as management quality, strategy, innovation, reputation, customer loyalty, and social responsibility. These factors are not easily quantifiable, but they can have a significant impact on the long-term viability and profitability of a borrower. Investment bankers use qualitative factors to complement quantitative factors, and to gain a deeper understanding of the strengths and weaknesses of a borrower. Qualitative factors can also help investment bankers identify potential opportunities or threats in the market.

添加您的观点

加载更多内容

5 Current challenges

The current market poses several challenges for investment bankers when assessing creditworthiness. The COVID-19 pandemic has disrupted many industries and businesses, making it difficult to use historical data and projections to evaluate creditworthiness. Additionally, the low interest rate environment has increased the demand for debt financing, making it harder to differentiate between borrowers and price debt instruments appropriately. Furthermore, the rapid technological and regulatory changes have created new risks and uncertainties for many sectors, making it more challenging to assess the impact of these changes on the creditworthiness of borrowers.

添加您的观点

加载更多内容

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

加载更多内容

Investment Banking

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

How do investment bankers assess creditworthiness in the current market?

1

2

3

4

5

6

1 Financial ratios

2 Credit ratings

3 Credit models

4 Qualitative factors

5 Current challenges

6 Here’s what else to consider

Investment Banking

给文章评分

感谢您的反馈

更多Investment Banking相关文章

更多相关阅读内容