Summary class preparation questions lecture 8

Notities
 Examen:
o Always mention your assumptions
o Uses names of the standardized B/S and income statement
o Income statement
 Increase in expense
 Decrease in profit/loss
 Decrease in tax expense
o forecast number of one or 2 years
o You get forecasted B/S and income statement and apply one of the valuation models
o Write always everything in words, like formulas  you already get some points
 Credit risk= risk that they are not able to pay the interest and capital
 The higher the rating, the better the creditworthiness
 No company received a triple A rating
 Triple B is most frequently given rating
 Only 18% of the companies that received a rating above triple B
 triple B: just investment grade debt
o below triple B: non-investment grade debt
 Dia 5
o use EBITDA to calculate the operating cash flow to debt
 Dia 6: table 10.8
o 6 financial ratio’s
o
o Model can be applied to private companies ( because you don’t find a characteristic
like market to book value)
o If coefficient is positive:
 The higher the firm size, the higher the creditworthiness
 The higher the profitability, the higher the creditworthiness
 The higher the standard deviation in return on invested capital  negative
sign  less creditworthiness
 Higher debt to capital ratio  lower creditworthiness
 Project
o Compute firm size  total invested capital ( see condensed B/S)  present in
billions!!!!
o Use EBITA for operating cash flow
o You compute ratios and multiply with the coefficients
o You add everything plus the constant!!  you get a score ( see onderaan table)
o Is score >4,93: double A or higher