Credit Risk Management (eBook)

Andrew Fight (Autor)

eBook Download: PDF

2004 | 1. Auflage
264 Seiten
Elsevier Science (Verlag)
978-0-08-047240-9 (ISBN)

Infos

Credit Risk Management will enable general bankers, staff, and credit analyst trainees to understand the basic information and principles underlying credit risk evaluation, and to use those underlying principles to undertake an analysis of non financial and financial risks when preparing a credit proposal. Since the best loans are the ones that do not present problems during the repayment phase, the authors also focus on elements relating to the proactive management of those loans during their inception.


This book introduces:
*Credit analysis, approval and management processes
*Concepts of financial and non-financial risk
*Financial statement analysis, including the use of ratio anaylsis
*Cash flow analysis and forecasting
*Security enhancement & management procedures designed to legally & financially manage credit risk

*Inspired by the basic entry level training courses that have been developed by major international banks worldwide.
*Will enable students and those already in the finance profession to gain an understanding of the basic information and principles of credit risk
*Questions with answers, study topics, practical real world examples and text with an extensive bibliography

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Credit Risk Management will enable general bankers, staff, and credit analyst trainees to understand the basic information and principles underlying credit risk evaluation, and to use those underlying principles to undertake an analysis of non financial and financial risks when preparing a credit proposal. Since the best loans are the ones that do not present problems during the repayment phase, the authors also focus on elements relating to the proactive management of those loans during their inception.This book introduces:*Credit analysis, approval and management processes*Concepts of financial and non-financial risk*Financial statement analysis, including the use of ratio anaylsis*Cash flow analysis and forecasting*Security enhancement & management procedures designed to legally & financially manage credit risk*Inspired by the basic entry level training courses that have been developed by major international banks worldwide.*Will enable students and those already in the finance profession to gain an understanding of the basic information and principles of credit risk*Questions with answers, study topics, practical "e;real world"e; examples and text with an extensive bibliography

Inhalt

Cover 1
Credit Risk Management 4
Contents 6
Foreword 8
1 Introduction to credit risk management 12
What is the role of credit analysis? 12
Framework for credit analysis 14
Types of lending 15
Temporary or seasonal finance 15
Working investment finance 17
Cash-flow lending 18
Types of financial statements 19
The company annual report 19
Other types of financial statements 20
Contents of financial statements 21
The balance sheet 21
The P/L statement 24
Diagram of balance sheet and P/L statement 24
Statement of sources and applications of funds 25
Other elements of the annual report 26
Notes to the financial statements 26
Auditors’ remarks 27
Directors’ information 29
Different presentations of financial statements 29
Problems with financial statements and auditors 39
Analytical methodology 43
Spreading the statements 43
Sample blank spreadsheet 44
Analysing the spreadsheets 47
Using comparative financial ratios 48
Peer group analysis 50
Outside information 50
Information available direct from the borrower 51
Bank and trade enquiries 54
Business registry databases 54
Bureau van Dijk AMADEUS electronic database 54
Complete AMADEUS spreadsheet (Vodafone) 57
Credit reporting and rating agencies 71
Industry information 71
Reference materials 71
Periodicals 72
Exercises 73
Questions 73
Answers 77
2 Business risks 78
Introduction to business risks 78
Borrower risk 79
Transaction risk 80
The ‘new economy’ 80
Introduction to non-financial and transactional risks 81
Borrower risk 83
Financial risk 83
Business risk 84
PEST analysis 84
SWOT analysis 86
Porter’s risk assessment matrix 88
Porter’s five competitive forces 89
Transaction risk 89
Some questioning techniques 90
Who, What, Where, When, Why, and How 90
Nature of the obligor 93
Example A – Memorandum and Articles of Association 94
Example B – corporate registration fees 95
Obligors with unlimited liability 96
Management 96
Macro-economic risk areas 98
Understanding the industry 98
Understanding the markets 100
Understanding the products 100
Understanding manufacturing/performance risk 102
Micro-economic risk areas 103
Growth 103
Corporate strategy and plans 103
Business plan 104
Management 104
People 105
Land and buildings 105
Plant and machinery 106
Infrastructure 107
Exercises 108
Questions 108
Answers 112
3 Financial risks 114
Financial statement analysis 114
Introduction to financial statement analysis 115
The annual report and accounts 115
About published accounts 115
Introduction 116
The Companies Acts 117
Filing information with the Registrar of Companies 117
The statement of accounting policies 118
Accounting premises 119
Accounting bases 119
Accounting policies 119
Points of interaction between the balance sheet and P/L 120
Consequences of abnormal accounting policies 121
The auditor’s report 121
Auditor’s rights 121
Auditor’s duties 121
Auditing Practices Board 122
Summary 122
Auditor’s opinion 122
Other opinions 123
The directors’ report 123
Stock Exchange requirements 124
Example of a directors’ report 125
The balance sheet 127
Introduction 127
Simple balance sheet 128
Annual report balance sheet 129
Explanation of balance sheet illustration 130
Debtors 131
Companies have different debtor profiles 131
Trade debtors/turnover 132
Creditors 132
Various types of creditors 133
Amounts owed to group companies 133
Stock and work in progress 134
Stock (Inventories) 134
Valuing stock 134
Inventory valuation methods 135
SSAP and stocks 135
Net realizable value of work in progress and finished goods 136
Borrowings 136
Limitations on borrowings 137
Banking facilities 137
Fixed assets 138
Investments 138
Depreciation 139
Depreciation methods 139
Share capital 140
Authorized and issued share capital 140
Preference shares 140
Ordinary shares 141
Deferred shares 141
Warrants 141
Share details 142
Reduction of share capital 142
Reserves 142
Types of reserves 143
The P/L account 143
Annual report P/L 145
Cash flow statements 148
Annual report cash flow statement 149
Simple ratio analysis 152
Liquidity measurement ratios 153
The current ratio 153
The quick ratio 153
Asset management ratios 154
Debtors to sales 154
Stock turnover 154
Capital structure ratios 154
Gearing ratios 154
Capital structure 155
Interest cover 155
Dividend cover 155
Profitability measurement ratios 155
Profit margin 155
Return on capital employed 155
Limitations of published accounts 156
Exercises 157
Questions 157
Answers 165
Ratio analysis 166
What is ratio analysis? 168
The users 168
Internal and external information 169
Classifying ratios 170
Performance ratios 171
ROCE (Return on Capital Employed) 173
ROE (Return on Equity) 174
Profit performance measurements 174
Asset performance measurements 176
Case study 177
Financial standing ratios 179
Longer-term solvency measurement 181
Investment ratios 183
Gross or net dividend yield 184
Dividend cover 184
Historical and peer group analysis 185
Composite industry ratios 191
Limitations of ratio analysis 192
Exercises 197
Questions 197
Answers 201
Cash flow forecasting 205
Introduction 205
Financial statement forecasting framework 206
The nature of term lending 206
Financial projections 207
Sources and uses of cash 208
Uses of cash flow forecasts 208
4 Transaction risks 210
Term loan agreements 210
Purpose of loan agreements 210
Covenants, events of default, and protection 211
Primary covenants 212
Secondary covenants 212
Events of default 213
Conclusion 213
Appendix A ratio calculations 214
Security enhancement and management 215
Follow-up on loan agreement compliance 215
Background to loan agreement covenants 216
Covenants and undertakings 217
Primary non-financial covenants 218
Negative pledge 218
Cross-default pledge 218
The Pari Passu covenant 218
Material adverse change clause 219
Anti-merger 219
Anti-disposal 219
Financial covenants 219
Net worth test 219
Restrictions on secured borrowing 220
Interest cover test 220
Dividend restraints 220
Minimum net worth requirement 220
Breach of covenant 221
Further considerations relating to covenants 222
Default 223
Events of default 223
Various levels of default 223
Common events of default 224
5 Failure and risk classification systems 225
Identifying causes of failure 225
Cyclical decline in demand 226
Poor top management 227
Effective management information systems and financial controls 229
Effective M& A and integration
Poor product development and marketing 232
Failure prediction models 236
Financial failure prediction models 237
Non-financial failure prediction models 239
Problems with failure prediction models 242
6 Annexes 243
Management attitude problem exhibit No.1 244
Creative accounting exhibit No.1 245
FRS and SSAP accounting reporting standards 246
Glossary 248
A 248
B 248
C 249
D 250
E 250
F 251
G 251
I 252
L 252
M 252
P 253
R 253
S 253
T 254
U 254
W 254
Y 254
Suggested readings 255
Ideas for further reading 255
Index 256
A 256
B 257
C 258
D 259
E 260
F 260
G 261
H 261
I 261
L 261
M 262
N 262
P 263
Q 263
R 263
S 264
T 264
V 265
W 265

Produkt-Details

• Erscheint lt. Verlag: 23.9.2004
• Sprache: englisch
• Themenwelt: Sachbuch/Ratgeber ► Beruf / Finanzen / Recht / Wirtschaft ► Geld / Bank / Börse
• Themenwelt: Recht / Steuern ► Wirtschaftsrecht
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Marketing / Vertrieb
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Rechnungswesen / Bilanzen
• Themenwelt: Betriebswirtschaft / Management ► Spezielle Betriebswirtschaftslehre ► Bankbetriebslehre
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Unternehmensführung / Management
• ISBN-10: 0-08-047240-0 / 0080472400
• ISBN-13: 978-0-08-047240-9 / 9780080472409