Once all of the important and required information have been submitted by the company requesting for a credit rating, the next step is for the lead analyst to go through the information that has been submitted and analyze these. The amount of information received can be overwhelming and it takes years of exposure to credit rating work to discern which detail is worth looking at and which does not deserve a second look.
A good practice to adopt is to take notes and jot details as you read through the information. In this way, you will remember items that need clarification or further explanation. Usually, as you read through the materials given, questions may pop up in your head and these are worth noting. You can just discard minor questions (or questions that can be asked verbally or not so formally) when you come up with your final credit rating questionnaire.
It is good to classify your questions into two main categories: qualitative and quantitive. Qualitative questions will take care of the Business Risk portion and will cover areas like core business, markets and competitive position, strategic plans, management and ownership, and the like. The quantitative portion, on the other hand, will take care of all your financial questions or those relating to the audited financial statements — the company’s balance sheet, income statement, and statement of cash flows, both historical and projected. It is likewise wise to categorize your questions into historical and projected periods.
For the financial portion, you will be focusing on aspects like: profitability, cash flow and liquidity, capital adequacy, and financial flexibility. You will need to watch out for significant changes in the figures from year to year, items which cannot be explained or do not look consistent, or figures which just look off. Again, it takes years of exposure to the credit rating field to easily spot such items. Offhand, any change which is not consistent with historical trends or historical ranges, or changes of more than 20-25% need a closer look.
Styles in coming up with the discussion points likewise vary. Bullets with phrases and keywords may be easier to read and go through while whole questions can give the person who will answer them a better flavor of what it is that you are really looking for or what is it that you are after.
A word of advice: try not to make your questionnaire too long or wordy. It can turn the client off. As such, make sure to only include relevant questions in your list and save the more minor details for your own research. Also, although there are really no “wrong” or stupid questions, it is best to raise questions after you have some understanding of the business or company that you are evaluating. The kind of questions you ask reflects how much effort has been put into analyzing the account that has been assigned to you.
Post a Comment