Credit Risk - Analyzing Firm Risk

Overview

Analysts are often asked to perform a credit assessment of a agiven company, often in order to value its debt, or to make an assessment of whether to extend credit to the firm in question and at what price.

Assessments

• Cash Flow and Liquidity
• Industry - a company's risk is oten tied to the industry it is in. Some industries are naturally more volatile than others. (think Utilities versus the Airlines)
• Profitability and Risk - profitable firms are less of a credit risk than non-profitable ones.
• Capital Structure - how leveraged a firm is will affect its credit worthiness. Highly leveraged firms have higher credit risk. (see capital structure)