This chapter evaluate a company’s past financial performance and explain how a company’s strategy is reflected in past financial performance, forecast a company’s future net income and cash flow, describe the role of financial statement analysis in assessing the credit quality of a potential debt investment, describe the use of financial statement analysis in screening for potential equity investments, explain appropriate analyst adjustments to a company’s financial statements to facilitate comparison with another company.
In recent years, enormous strides have been made in the art and science of
credit risk measurement and management. Much of the energy in this area
has resulted from dissatisfaction with traditional approaches to credit risk
measurement and with the current Bank for International Settlements (BIS)
PDi and LDi are aimed at testing the incidence of adverse selection: whether firms in
poor financial health and/or facing liquidity constraints are more likely to seek and get access
to bank credit. In the case of the liquidity dummy there is no ambiguity about the causality
and the interpretation of the results in terms of adverse selection. However, in the case of the
profitability dummy, again we cannot fully eliminate the endogeneity problem because – as
mentioned before – firm’s profit/loss position may affect also bank’s decision to extend the
A 1994 study conducted by the National Association of Independent Credit Reporting
Agencies (now known as the National Credit Reporting Association) represents a third
approach to the question of credit report accuracy.
In the United States, insurance regulators require bonds and preferred stocks to be reported
in statutory financial statements in one of six National Association of Insurance
Commissioners (NAIC) designations categories that denote credit quality. If an accepted
rating organisation (ARO) has rated the security, the security is not required to be filed with
the NAIC’s Securities Valuation Office (SVO). Rather, the ARO rating is used to map the
security to one of the six NAIC designation categories.
After origination, changes in market interest
rates and in the credit quality of the issuing
entity, as well as the passage of time, typically
change the market value of the credit swap. For
a given credit swap with stated annuity rate U,
one must then determine the current market
value, which is not generally zero.
When making markets, the first pricing problem
is the more critical. When hedging or marking
to market, the second problem is relevant. Methods
for solving the two problems are similar.
Regulators interviewed for this study noted that the examination philosophy was to
identify adherence to rules and regulations, not adherence to general principles of safety
and soundness. Because most S&L assets were fixed-rate home mortgages, credit-quality
problems were rare. Loan evaluations were appraisal driven, and in the past the value of
collateral had consistently appreciated. Thus, losses on home mortgages were rare, even in
the event of foreclosure.
Assessing the usefulness of these data as a poten-tial source of information for the Board involves several tasks. This article is an initial step in the process; it examines the scope and content of the data, using a framework based on key aspects of credit evaluation. This approach is a natural way to begin the assessment process because the credit reporting companies' primary purpose for collecting these data is to facilitate credit evaluation.
The purpose of this essay is to show how credit markets influence
development and to argue that the impact of improvements in credit markets is
quantitatively significant. The essay first establishes the fact that access to credit is
limited, emphasizing the magnitudes. It then goes on to the potential importance of
financial sector development, again quantifying the impact. Toward the end of the
essay there is a discussion of the merits of different interventions.
copy and build upon published articles even for commercial purposes, as long as the author and publisher are properly credited, which ensures maximum dissemination and a wider impact of our publications. After this work has been published by InTech,
A prerequisite for using the facilities offered by the Bundesbank for cashless payments is a current
account with the Bundesbank.
The Bundesbank manages current accounts for banks and public
authorities and, in exceptional cases - with a limited range of services - also for companies and private
individuals. Apart from the minimum reserve balances, current accounts with the Deutsche
Bundesbank do not bear interest and are run on a credit basis only. In accordance with the cover
principle laid down in the BBankG, payment orders are only executed if sufficient cover is available.
Few services are more important in our country than providing high-quality potable water and
ensuring that wastewater is properly treated and returned to the environment. Most Americans take
for granted the tens of thousands of people who are employed daily in addressing America’s water
and wastewater needs. Utility managers are responsible for making sure that proper water and
wastewater services are provided to residents, businesses, industries, and other customers within a
community. Water and wastewater employees work in utility operations and administrative support
In Japan, credit ratings issued by Designated Rating Agencies (DRA) are used to estimate
market risks and counterparty risks for the purpose of calculating the capital adequacy ratios
for securities companies.
Japan also noted that for calculating the capital adequacy ratios
for banks and other deposit-taking institutions, credit ratings issued by ECAIs are used
subject to the Financial Services Agency (JFSA) ordinance under the Banking Act.
Stability Bonds would promote efficiency in the euro-area sovereign bond market and in
the broader euro-area financial system. Stability Bond issuance would offer the possibility
of a large and highly liquid market, with a single benchmark yield in contrast to the current
situation of many country-specific benchmarks. The liquidity and high credit quality of the
Stability Bond market would deliver low benchmark yields, reflecting correspondingly low
credit risk and liquidity premiums (see Box 1).
CP is normally issued with maturities of 270 days or less, though most
CP has maturities of 90 days or under. Yields vary with maturity and credit
quality, but CP normally offers a higher yield than Treasuries or agencies.
Because CP has such a short maturity, the companies that issue it are almost
constantly raising money in the market, rolling over or replacing CP that
has just matured, as part of a commercial paper program.
Since the CP market is generally open only to issuers with strong credit
ratings, there have been few defaults over the years—but there have been
The diversity of experiences across Africa, Latin America, and the rest
of the world notwithstanding, there are some commonality of lessons
that help translate them into findings that can aid countries that have
not as yet had the same experiences. These commonalties of experiences
within very different countries are important, whether the experience
relates to the autonomy of decisionmaking, to decentralization, or to
private sector participation.
The Affordable Care Act increases insurance company accountability by supporting States’
review of premium increases, setting standards for the amount of premiums spent on benefits
versus overhead (i.e., medical loss ratios), and posting insurance price information for
transparency. A Small Business Health Care Tax Credit, reinsurance for early retirees, and
premium assistance for uninsured people with pre-existing conditions have already provided
targeted relief for millions of insured and uninsured Americans, and these changes are making a
Debt settlement companies required consumers to pay an up-
front fee to join a debt assistance program that would eliminate the debt for a
fraction of the amount owed. Many offered to refund the fee if the customer
did not save a specified amount of money. Some groups claiming to be non-
profit organizations offered debt counseling services targeting consumers
with poor credit histories to help them obtain loans and credit cards or settle
In some contracts with deductibles, the insurer pays the full claim then seeks reimbursement
from the insured for the deductible portion of the contract. In some jurisdictions, such
arrangements are also known as “large deductibles”. The resulting policy premium for such
large deductible policies is expected to be smaller than if no deductible existed. Different
accounting systems may choose to treat the premium reduction due to the deductible credit