SIVA SIVANI INSTITUTE OF MANAGEMENT
BUSINESS RESEARCH MANAGEMENT
‘4 C’S OF FINANCIAL ANALYST’
D. SAHITYA KEERTHI
ELEMENTS OF CORPORATE CREDIT ANALYSIS
The financial analyst considers the four 'C's of credit.
This refers to the ethical reputation, business qualifications and operating record of the directors, managers and executives responsible for borrowing and repaying the funds. It addresses the borrower's willingness to pay irrespective of ability. For many lenders, the borrower's character is the most important variable. Capacity
This addresses the cash flows or the ability of the issuer to repay its financial obligation. Without sufficient capacity, it is unlikely that the lender will ever consider lending the borrower money unless there is sufficient net worth (i.e. other liquid assets) or high collateral in an asset that has liquidity and strong market value. The capacity, or ability to pay, reflects the funds flow from the organization and the generation of cash sufficient to meet the interest and principal repayments. This section comprises the primary duties of the credit analysis and requires a thorough examination of the financial statements, projections and inherent covenants. Collateral
It involves not only the traditional pledging of assets to secure the debt, but also the quality and value of those unpledged assets controlled by the issuer. At level 1 we discussed the various types of collateral. High quality collateral provides the lender an additional cushion against poor operating performance or management decisions. Assets which provide the best collateral include raw materials or other assets which trade in a commodity environment. By contrast, assets which have high obsolescence risk such as fashion or high technology equipment may provide very poor collateral or protection for a loan. A debt obligation can be secured or unsecured. In theory, proceeds from a bankruptcy...
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