Credit Risk Modeling - Build Credit Risk Model from Scratch

Derive profit and loss, balance sheet, and cash flow statements for two IT companies across 17 sheets, then build Altman Z-score and structural credit models for evaluation.

analyze Company A's standalone profit and loss statement across five years, detailing sales turnover, net sales, other income, total income, and employee costs in a service-oriented software company.

Analyze how miscellaneous and operating expenses drive total costs, then compute profit before tax and net profit after depreciation, amortization, and tax, revealing earnings per share trends for company A.

Analyze company A's balance sheet to compare liabilities and assets and understand sources of funds. Examine debt versus equity, reserves and surplus, and net worth.

Explore how investments form assets and generate accrual, growth, or value cash flows, then analyze working capital with inventories, sundry debtors, cash and bank balances, and loans.

Learn how a cash flow statement reveals a company's liquidity by tracing operating, investing, and financing activities, and compare profits with actual cash to assess creditworthiness.

Explain Company B's profit and loss derivation, including revenue from operations, other income, total expenses, and profit before tax, then tax breakup and post-tax results.

Derive company b's balance sheet in million dollars across five years, detailing equity share capital, reserves, debt trends, and the relationship between assets, liabilities, and working capital.

Analyze Company B's cash flow statement, detailing net profit or loss before extraordinary items, tax, cash flows from operating, investing, and financing activities, including foreign exchange gains and merger adjustments.

Explore the Altman z-score model in an Excel credit model, covering probability of default, loss given default, and expected loss with examples and normal distribution intuition.

Apply the altman z-score model to balance sheet data by computing working capital, reserves and surplus, pbt, and sales as ratios to total assets, with empirical coefficients.

Compute the Altman Z score from five ratios, including market value of equity to debt and market capitalization, apply coefficients, and assess bankruptcy probability and creditworthiness for competing firms.

The lecture analyzes the Altman z-score curve for two firms, showing near-zero probability of bankruptcy and default, zero lgd, and concludes both companies are creditworthy within the sector.

Build a baseline structural credit risk model from scratch using assets and debt, and explore the ln(A/D) distance in Excel to assess solvency and volatility.

Apply Merton's model to credit risk using Black-Scholes pricing that links firm value and debt with volatility, computing e1, e2, and default risk for company A and B.

Compare company B using Merton's model to assess credit risk, showing zero expected loss and strong creditworthiness under sector assumptions, with Altman Z-score as a reference.

Analyze three months of prices for company a and b, compute closing price changes and standard deviation to gauge volatility, with 2% and 2.5% dispersion indicating green flags.

Combine Altman z-score and structural model outputs to compute cumulative probability, probability of bankruptcy, loss given default, and expected loss for two companies A and B, highlighting healthy credit risk.

Explore the unhedged foreign currency exposure model for exporters and how hedging and foreign currency volatility affect sales, profitability, and creditworthiness.

Demonstrate hedging currency risk to mitigate dollar depreciation by using reserves, selling currencies, and bank conversions; assess hedging adequacy with an Excel model.

Ufce modelling part 3 explains how unhedged foreign currency exposure links to likely loss as a percentage of ebit, guiding hedging, credit exposure, and incremental capital requirements.

Assess unhedged foreign currency exposure for two companies, evaluate hedging against borrowings and exports, and compare EBITDA and EBIT to show company A's stronger profitability and sector strength.

Analyze a company's working capital by examining current assets minus current liabilities, including inventory, sundry debtors, cash, and sundry creditors, to assess liquidity and credit risk.

Analyze how excessive sundry debtors and long credit periods affect working capital, cash in hand, and borrowing needs in Company A, informing credit risk modeling with prudent credit.

Assess company B’s working capital from the balance sheet, noting cash in hand and positive liquidity, with no reliance on debt and implications for credit strength.

Analyze company A and B using five-year financial data, focusing on revenue, operating profit, working capital, leverage, and debt to cash flow; build evaluation metrics and slope analysis.

Analyze Company A's balance sheet to derive working capital and the debt-to-PBD ratio. Compute debt-to-cash-flow and revenue, profitability, and operating profit trends to support credit analysis.

Analyze how slope indicates trends in revenue, operating profit, and balance sheet items using Excel, highlighting debt, cash flow, and credit indicators in company A's financial statement analysis.

Apply slope-based financial analysis to Company B's statement, interpreting revenue and operating profit growth, working capital, and debt ratios to assess creditworthiness and inform final recommendations.

Learn to build evaluation metrics for credit risk by computing five-year cash-flow and net-worth slopes for two companies using if-then logic, yielding positive or negative outlook flags.

Evaluate equity infusion and liquidity signals from balance sheets to assess credit risk, comparing company A and B via equity share capital, cash in hand, and working capital.

Assess credit health for two companies using an evaluation metric that analyzes leverage ratio, debt repayment ratio, cash flow, liquidity, and equity infusion, highlighting green flags and no parent support.

Apply way out analysis using market data to assess creditworthiness with focus on free cash flow, parent support, and access to funding for company A, company B, and the sector.

Investigate third party guarantees, where a guarantor, G, backs A's bank loan. Assess the guarantor's balance sheet strength and bank relations to gauge default risk and potential non-performing assets.

Analyze internal rating analysis using internal data and key metrics such as probability of default and debt to cash flow, yielding a green flag for strong IT sector companies.