Credit Risk Modeling - Build Credit Risk Model from Scratch
What you'll learn
- How to analyze and derive financial statements, including income statements, balance sheets, and cash flow statements.
- The application of the Altman Z-Score Model to predict financial distress and bankruptcy.
- The practical use of Merton’s Model for credit risk evaluation based on stock prices and company data.
- How to build and interpret Unlevered Free Cash Flow to Equity (UFCE) models.
- Comprehensive working capital analysis to assess a company's liquidity and operational efficiency.
- Key evaluation metrics used in credit risk analysis and how to apply them effectively.
- A comparative financial analysis between two companies to identify strengths and weaknesses.
- How to conduct Way Out Analysis and internal rating analysis for companies in financial distress.
- Techniques for building data-driven financial recommendations.
- The complete process of integrating financial statement analysis with advanced credit risk modeling.
Requirements
- Basic Understanding of Financial Statements: Familiarity with financial concepts like balance sheets, income statements, and cash flow statements.
- Knowledge of Accounting Fundamentals: A basic grasp of accounting principles and financial ratios will be helpful.
- Analytical Skills: Ability to interpret and analyze data, especially financial metrics.
- Excel Proficiency: Basic to intermediate knowledge of Microsoft Excel for financial modeling.
- Interest in Finance or Credit Risk: A passion for understanding company performance and credit risk assessment.
- No Advanced Finance Background Needed: The course is designed to introduce these topics step-by-step, so no advanced knowledge is required.
Description
Introduction:
This comprehensive course is designed to take students through the intricate process of financial statement analysis and credit risk modeling, using real-world companies as case studies. Students will learn how to derive and analyze financial statements, apply models like Altman Z and Merton’s Model, conduct working capital analysis, and evaluate credit risk through advanced modeling techniques. By the end of the course, students will have the tools and knowledge to effectively assess a company’s financial health and risk profile.
Section 1: Introduction
In this section, students will be introduced to the course objectives and structure. The focus will be on laying the groundwork for understanding financial statements and credit risk analysis, with an emphasis on the practical applications of these concepts in real-world scenarios.
Section 2: Financial Statement Derivation of Company A
This section delves into the financials of Company A, guiding students through the derivation and analysis of its financial statements. From dissecting income statements to understanding balance sheets and cash flow statements, students will get hands-on experience with each component of financial reporting. The key focus is on reading and interpreting financial data to assess the company’s performance.
Section 3: Financial Statement Derivation of Company B
Similar to Company A, this section focuses on Company B’s financial statements. Students will explore how to analyze the balance sheet, cash flow, and other key financial reports, identifying trends and comparing company performance. This section highlights the differences between companies in terms of financial health and strategy.
Section 4: Altman Z-Score Model
In this section, students will be introduced to the Altman Z-Score Model, a widely used tool for predicting bankruptcy and financial distress. Through detailed examples, students will learn how to apply this model to Company A and Company B, understanding the factors that influence a company's risk of insolvency.
Section 5: Structured or Merton’s Model
The Merton’s Model is a key focus in this section, where students will explore its application to credit risk analysis. Students will learn how this model is applied to both Company A and Company B, gaining insights into how stock prices and balance sheet data contribute to credit risk evaluations. Additionally, cumulative credit analysis will be covered to further enhance their understanding.
Section 6: UFCE Modeling
Unlevered Free Cash Flow to Equity (UFCE) modeling will be explored in this section. Students will walk through the steps involved in calculating UFCE for both companies, building a deep understanding of how free cash flow is used in valuation and credit risk analysis. This hands-on section provides practical experience in financial modeling.
Section 7: Working Capital Analysis
Students will dive into the working capital structures of Company A and Company B in this section. By analyzing working capital needs and trends, they will gain the skills to assess liquidity and operational efficiency, which are critical for financial health assessments.
Section 8: Financial Statement Analysis
This section takes students through a detailed financial statement analysis for both Company A and Company B. By comparing the two companies, students will learn how to identify financial strengths and weaknesses, interpret key financial ratios, and derive meaningful conclusions about the companies’ financial health.
Section 9: Evaluation Metric
Students will be introduced to various evaluation metrics used in credit risk analysis. This section will cover the calculation and interpretation of these metrics, providing the tools to compare and contrast the financial health of different companies, including the impact of various market factors on the analysis.
Section 10: Way Out Analysis
Way Out Analysis focuses on understanding the potential exit strategies for a company facing financial distress. Students will also explore internal rating analysis, learning how companies are evaluated for creditworthiness and the steps they can take to improve their financial standing.
Section 11: Final Recommendation
In the concluding section, students will synthesize all their learnings to provide a final recommendation regarding the financial health and credit risk of Company A and Company B. By combining financial statement analysis, credit risk models, and evaluation metrics, students will deliver well-rounded recommendations supported by data-driven insights.
Conclusion:
By the end of this course, students will be well-versed in analyzing financial statements, applying credit risk models, and making informed financial decisions. They will be equipped with both theoretical knowledge and practical skills to analyze a company’s financial stability and risk, positioning them for success in the fields of finance, accounting, and investment analysis.
Who this course is for:
- Finance Students: Those pursuing degrees in finance, accounting, or business who want to deepen their understanding of financial statement analysis.
- Aspiring Financial Analysts: Individuals aiming for a career in financial analysis, credit risk, or corporate finance.
- Investment Professionals: Those working in investment banking, equity research, or portfolio management seeking to enhance their skills in company evaluation.
- Credit Risk Analysts: Professionals in credit risk assessment who want to strengthen their modeling techniques, such as using the Altman Z-score and Merton's model.
- Entrepreneurs & Business Owners: Those who want to assess the financial health of their own or competitors' companies.
- Accountants: Professionals who want to learn advanced techniques for evaluating company performance and financial health.
- Curious Learners: Anyone interested in gaining a structured understanding of financial statement analysis and credit risk modeling.
Instructor
- 4.2 Instructor Rating
- 18,020 Reviews
- 480,812 Students
- 639 Courses
EDUCBA is a leading global provider of skill based education addressing the needs of 1,000,000+ members across 70+ Countries. Our unique step-by-step, online learning model along with amazing 5000+ courses and 500+ Learning Paths prepared by top-notch professionals from the Industry help participants achieve their goals successfully. All our training programs are Job oriented skill based programs demanded by the Industry. At EDUCBA, it is a matter of pride for us to make job oriented hands-on courses available to anyone, any time and anywhere. Therefore we ensure that you can enroll 24 hours a day, seven days a week, 365 days a year. Learn at a time and place, and pace that is of your choice. Plan your study to suit your convenience and schedule.