Diagnosing borrower bankruptcy risk

Programme

Introduction: goals and algorithm of the analysis

• Internal and external factors affecting the company's activities
• The sequence of the analysis

Reading and analysing financial statements. Horizontal and vertical methods of analysis. How industry specifics show in the statements. General provisions for preparing consolidated financial statements

• The balance sheet — information about investments and the sources of their financing. Industry specifics of balance sheets
• The profit and loss statement — information about income and expenses. Reflection of the «value chain» and the specifics of the business
• The cash flow statement — information about cash inflows and outflows. Specifics of company life cycles and types of activity (operating, investing and financing)

Workshop: reading and analysing financial statements

Analysing the borrower's return on investment

• Assessing return on investment
• Factors affecting return on investment
• Industry specifics of the business being financed. Diagnosing business development problems
• The cash cycle and its impact on the company's need for borrowed funds. Effectiveness of cash flow management

Workshop: analysing return on investment

The company's financial stability (risk and return). Analysing the company's financial stability, liquidity and solvency

• The impact of the financing structure on profitability and risk
• Business growth rates, loans and financial stability
• Assessing the balance sheet structure: «coverage» (liquidity) ratios
• Methods of assessing solvency

Workshop: analysing the company's financial stability

Market valuation indicators and their relationship with the main financial indicators

• «Securities market» indicators: PE, EPS, DPS, Yield, Market-to-Book and their relationship with financial ratios. The DuPont formula

Assignment: verifying the DuPont formula