- CFA Exams
- 2024 Level I
- Topic 7. Fixed Income
- Learning Module 16. Credit Analysis for Corporate Issuers
- Subject 1. Assessing Corporate Creditworthiness
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Subject 1. Assessing Corporate Creditworthiness PDF Download
The credit risk of a borrower can be evaluated using qualitative and quantitative criteria that affect a company's likelihood of default and the investor's loss in the event of a default.
Qualitative factors include a company's business model, its industry, and its competitive position and business risks, and its corporate governance.
Industry fundamentals include the industry's sensitivity to macroeconomic factors, its growth prospects, its profitability and its business needs. Michael Porter's framework can be used to analyze industry structure.
Company analysis include the company's competitive position, track record, management's strategy and execution, and ratio analysis.
Quantitative factors include financial statement analysis and forecasts, which use profitability, liquidity, leverage, and coverage measures to gauge a company's ability to meet its fixed debt obligations.
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