Advanced Financial Analysis: Credit Report Project (guideline)

Advanced Financial Analysis: Credit Report Project (guideline)

The final objective of this part of the coursework is to assess a company’s credit risk through a comprehensive analysis of its fundamentals. Students should follow Moody’s rating methodology. Please find below a guideline you should apply for 1 company you selected (you’re free to pick the one you want). This guideline gives you details about what I expect you to do for the coursework.

The company should have the following characteristics:

• Listed
• Financial statements comply with IFRS rules
• Oil & gas and Banking/Insurance/Financial/Real estate sectors are excluded.

Part of the analysis needs financial information for the last three years. Prerequisite: collect the financial statements/notes to these statements and other information about the company for the last 3 years. VERY IMPORTANT: Make sure that you will get access to all the needed information to answer to all questions (important information includes for e.g.: detailed notes about pensions, operating leases, development costs, rating… not exhaustive). If some information is missing/partial, make relevant assumptions and justify them. If you cannot, it would be better to choose another company.

The coursework consists of writing a credit report including the following elements:

• A section entitled: 1. Corporate profile

A brief resume about the company’s profile. Students should detail the company’s strategic business areas and other relevant information related to the company’s profile.

• A section entitled: 2. Business profile

A detailed analysis of the key factors that impact the company’s business.

Students should summarize key factors about the competitive/industry/economic environment.

• A section entitled: 3. Key financial ratios                 (for the last 3 years)

A table with the key financial ratios. Comment any relevant change in these ratios over the period.

1/ Students are free to select the ratios they want; obviously, these ratios should be as relevant as possible to assess the financial profile of the company.

2/ Ratios should be based on Moody’s adjusted financial data (refer to: Moody’s cross-sector rating methodology: Financial Statement Adjustments in the Analysis of Non-Financial Corporations).

• A section entitled: 4. Mapping grid                         (only for the last year)

This section is dedicated to the mapping of the company’s rating. Students should apply Moody’s methodology, should comment every factor assessment and should detail qualitative criteria.

(refer to: Specific methodology provided by Moody’s – for this, you will need to register on Moody’s website, use the search toolbar, research type: methodology, pick the one relevant to the industry in which your company operates)

• A section entitled: 5. Rating rationale                         (only for the last year)

A discussion of main arguments leading to the rating classification, taking into consideration rating drivers, the positioning of the company within its environment, and also any discussion related to notch uplift/downgrade. Explain what could change the rating – Up/Down, based on the analysis of the company’s credit profile.

• A section entitled: 6. Other rating considerations         (only for the last year)

This section is dedicated to other factors. It must include an analysis of ESG (Environmental, Social & Governance) considerations and how it could impact a SRI (Socially Responsible Investing) investor’s decision (resources: Thomson EIKON, Bloomberg or any other source). Students are free to discuss other factors they think relevant for the analysis.

• An additional section (not compulsory) entitled: 7. Other

Use this section to discuss any relevant topic that does not fit in previous sections.

 Please note the following for the preparation of your document:

• Carefully state and justify any choice/assumption you make and detail the formulas / models you use.
• Be concise and synthetic! More does not mean good analysis…
• Carefully explain and discuss all your findings.
• Use graphs/tables whatever you want that could synthetize your findings. You must attach the Excel file with the source calculations but make sure you include all the relevant pictures, tables, etc. in the document (with appropriate references to the excel file).
• I expect high quality documents (tips: justify your text, put your names by alphabetical order on the first page – last name first, names in column, as well as your group number & your major, do not forget the index, appendices should be separated, number pages sequentially, make sentences rather than using bullet points – it is not a ppt presentation but a report…). The excel file should be of the same quality.
• Do not forget that the credit report is the main file, so all your opinion/analysis should be inside. Comments in the excel file won’t be considered (nonetheless, the excel file is compulsory as it will allow the reader checking calculations).

Questions:

Normally you should not raise questions (I guess this guide is clear). But in case it is not as clear as I think, I will only answer to questions (if relevant) asked in class to make sure that every student will have the same information. I do not answer to individual questions. Obviously, I won’t answer to any question directly related to the work I expect you to do.

Deadline: penalty of 1 mark per day late (maximum 3).

One submission only per group (group composition is available on tomorrow).