INDEX 1. RED FLAGS 2. RISK 3. RATIO ANALYSIS 4. ACCOUNTING PERIOD 5. DU PONT ANAYSIS 6. DEFERRED TAX 7. CREDIT RATING 8. IMPORTANT KEY RATIOS 9. CURRENCY CONVETIBILITY 10. CURRENT ACCOUNT CONVERTIBILITY 11. CAPITAL ACCOUNT CONVERTIBILITY 12. WORKING CAPITALTONDON COMMITTEE
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
INDEX1. RED FLAGS2. RISK3. RATIO ANALYSIS4. ACCOUNTING PERIOD5. DU PONT ANAYSIS6. DEFERRED TAX7. CREDIT RATING8. IMPORTANT KEY RATIOS9. CURRENCY CONVETIBILITY10. CURRENT ACCOUNT CONVERTIBILITY11. CAPITAL ACCOUNT CONVERTIBILITY12. WORKING CAPITALTONDON COMMITTEE
RED FLAGSRed Flags analysis comprises
credit, debt etcSEBI has introduced RED FLAGSRed Flags are identified into 4
Business & management risk:• Promoters & key mngt. Their
personal track records• Aggressive growth policy• Complicated business structure• High customer concentration
Financial Risk:•Quality of CF generation/earning ratio•Difference in w.c•Large amt of cash lying idle.•Sales generation on capital employed•Change in cash sales•Intangible asset as part of total asset.
Corporate governance Risk:•Concentration of promoters holding•Quality of board & their independence•T/O of senior mngt.•Mngt. Compensation package
Risk Methodology for Mfg co. Credit analysis of an entity begins with a review of the Economy/Industry in which the
entity operates along with an assessment of the business risk factors specific to the
entity.1. Economy & Industry Risk: The economic/industry environment is assessed to determine the degree of operating
risk faced by the entity in a given business. (key ingredients of industry risk.)
Investment plans of the major players in the industry, demand-supply factors, price trends, changes in technology, international/domestic competitive factors in the industry, entry barriers, capital intensity, business cycles etc
2. Business Risk Analysis:Few parameters involved in assessing business risk:• Diversification• Size• Seasonality & cyclicality• Cost structure • Market share
3. Financial Risk Analysis:
Financial risk analysis involves evaluation of past and expected future financial performance with emphasis on assessment of adequacy of cash flows towards debt servicing.•Cash Flows•Financial Ratios•Financial flexibility•Validations of projects & sensitivity analysis
4. Management Evaluations.
Project Risk It is any factor that may potentially interfere
with successful completion of the project. It is not an problem but recognition that a
problem may occur.Types:1. Expansion2. Debottlenecking3. Backward/Forward integration4. Diversification
Leverage BuyoutsIn LBO the acquirer anticipates that loans can be
quickly repaid through the disposal of non-core assets that the target holds.
Risks involved: Carry out the sale of non core asset or value is lower then previous
anticipation. Considering the country’s regulatory, social & law and other
Drawing power Drawing Power is the amount of Working Capital funds the
borrower is allowed to draw from the Working Capital limit allotted to him.
Concept of drawing power is generally applicable on CC accounts.
It is calculated by considering the total value of paid stock (Paid stock=Stock fewer Creditors) + book debts (not more
than 90 days old) & deducting margin from the same
TONDON COMMITTEEAn committee appointed by RBI for
advising to FIX MPBF for borrower.Developed in 1975Recommended 3 methods.1. Borrower’s to buy 25% of net w.c2. Borrower’s to buy 25% of c.a3. Borrower’s to buy 25% of core c.a
NAYAK COMMITTEEIn 1993, committee
recommended fixation of credit limits of small entities on the basis of projected turnover i.e. w.c limits up to 25% of projected turnover.