Seniority Rankings, Recovery Rates, and Credit Ratings
Debt seniority is the system that determines the priority of payment when a company defaults. Debt obligations vary in seniority. Some companies have simple capital structures, while others, especially those in industries impacted by regulations or acquisitions, have complex debt…
Financial Ratios in Corporate Credit Analysis
Financial ratios derived from quantitative factors enable credit analysts to gauge a company’s financial health, spot trends, and conduct comparisons within and across sectors. The focus is primarily on three critical areas: profitability, coverage, and leverage. Profitability Ratios EBIT Margin…
Assessing Corporate Creditworthiness
Creditworthiness of a Company The main factor in assessing a company’s creditworthiness is its capacity to generate profits and cash flow adequate to fulfill its interest and principal obligations. This is a crucial aspect of a company’s financial health and…
Sovereign and Non-sovereign Government Debt
Sovereign and non-sovereign entities use debt issuance to finance their operations. In contrast to corporate bonds, these debts are utilized for fiscal projects and to meet budgetary needs. These needs may encompass essential public services such as transportation infrastructure, healthcare…
Factors Influencing Yield Spreads and Volatility
Corporate bonds and other debt with higher credit risk typically have higher yields compared to default-free bonds like US Treasuries. These yield differences, measured in basis points, can widen due to factors such as declining creditworthiness (credit migration or downgrade…
Credit Ratings: Uses and Limitations
Credit Rating Agencies Overview Major credit rating agencies like Moody’s, Standard & Poor’s, and Fitch Ratings critically influence credit markets. They evaluate issuer credit risk using quantitative and qualitative methods, resulting in credit ratings for most corporate and sovereign bonds….
Understanding Credit Risk
Credit risk arises when there is a potential for a borrower to default on their obligations, specifically by failing to fulfill their interest and principal payment obligations on a bond or loan. This particular risk, which originates from a contractual…
Deferred Tax Items Disclosures
Income tax disclosures included in the notes to financial statements can provide analysts with very useful information. Therefore, including income tax disclosures in the notes to financial statements can have a material impact on financial statement analysis, including the derivation…
Effective Tax Rate, Statutory Tax Rate, and Cash Tax Rate
Income taxes payable are mainly influenced by the geographic distribution of taxable income of the company and the corresponding tax rates in each location, but the nature of the business can also have an impact. For instance, some companies receive…
Deferred Tax Liability and Asset
Recall that deferred tax assets and liabilities originate from temporary differences between financial accounting profit and taxable income. Specifically, deferred tax assets indicate taxes that have already been paid or losses carried forward from prior periods but are not yet…
