Definition of corporate credit risk
Corporate credit risk refers to the enterpriseIn the course of a transaction linked by a credit relationship, one party to the credit transaction may not be able to perform the contract normally or in full, bringing the risk of loss to the other party. Once credit risk arises, it may affect the production and operation activities of the enterprise, and even put the enterprise in a situation of bankruptcy. The occurrence of corporate credit risk is often in the process of transactions under credit relationships such as purchasing commodities on credit, investing abroad, or issuing bonds.
In the case of goods sold on creditThe main manifestations of risk are credit arrears, advance payment arrears, etc. When an enterprise is in the process of selling on credit, the risk is mainly concentrated in two aspects: sales and payment collectionSales RiskThe main reason is that the sales volume of the product will be strongly impacted by the small credit sales force;Payback riskIt is mainly reflected in the fact that after the completion of the credit transaction, the enterprise will face the risk that the accounts cannot be recovered or cannot be fully recovered.
In the investment scenario,Investment risk mainly refers to the possibility of economic losses suffered by an enterprise in investment activities, or the possibility of not being able to obtain the expected investment returnsIt is mainly manifested in the risk that the borrower will not be able to repay the principal and interest in the lending relationship, as well as the legal risks and tax risks arising from the lending relationship. In the case of bond issuance, the corporate as a debtor may bring credit risk to others.
Different enterprises have different credit structures and face different credit risksTherefore, it is also necessary to start by identifying risk factors and understanding the specific risks of the enterprise** in order to specifically assess and accurately manage them.
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Elements of enterprise credit risk assessment
Because the products or services provided by each industry have different characteristics, and the consumer groups they face are also different, so there will be different business models, so the influencing factors of credit risk in each industry are also different, and the weight of each factor in different industries is also different. However, through standardized enterprise credit risk analysis, the credit risk level of a particular enterprise can be determined.
Credit risk analysis generally includes the company's operating conditions, financial data and future performance** in recent years, and also needs to consider the potential impact of changes in the company's competitive comparison, management level and financial strategy on the company's credit risk.
The following will specifically introduce the 6 elements that need to be evaluated in the process of enterprise credit risk analysis:
Operating Environment
The development of an enterprise is inseparable from the environment in which it operatesThe operating environment here refers to a macro environment that is more external. In the study of credit risk, the consideration of the operating environment can be divided into:Macroeconomic situation,Laws, Regulations, and Policies, socio-cultural environment.
Macroeconomic environmentIt is the main content of sovereign credit assessmentSovereign ratings analyze a country's macroeconomic situation, reflect the country's ability to service its debts, and also impose a cap on corporate ratings. The macroeconomic situation can reflect the overall economic performance of a country. When the macroeconomic situation is stable and optimistic, it will create favorable conditions for the survival and development of enterprises, and at the same time, it will also reduce the credit risk of enterprises；On the contrary, the turbulent and negative macroeconomic situation will lead to a lot of contractionary fiscal policies, which will increase the operating costs of enterprises and increase the risk of corporate default.
National laws and regulations and related policiesIt is also one of the important factors to be considered in the assessment of corporate credit riskFor example, environmental protection restriction policies, import and export policies, industrial regulation policies, etc., will have a greater impact on enterprises and increase their credit risk. However, any country and the first country will also put forward policies such as subsidies, export tax rebates, and subsidies for scientific research funds, which are conducive to further expanding the scale and increasing the income of enterprises, so the credit risk of enterprises will also be reduced.
In addition, the social and cultural environment also has a great impact on the credit risk of enterprises. The socio-political and cultural environment includes not only the political environment, social situation and education level of a country or region, but also the mainstream values and value systems of the society. Once the credit culture is lacking, when it affects production credit, financing credit and financial credit, corporate credit will be extremely risky due to default or debt, and the credit market can also have a negative impact.
Industry Risk
Industry risk is between the risk of the macro operating environment and the risk of the micro enterprise itselfIt mainly involves risk factors such as the development prospects of the industry, the cyclical characteristics of the industry, the degree of competition in the industry, the technical level of the industry, the barriers to entering the industry and the threat of substitutes
The development prospects of the industryIt mainly refers to the supply and demand of the industry and the relevant industrial policiesThe greater the market demand in the general industry, the more stable the operating environment of enterprises in the industry will beThe market demand of the industry determines the market capacity of the industry and the development scale of enterprises in the industry. In addition, the industrial structure policy, industrial organization policy, industrial technology policy and industrial layout policy contained in the industrial policy are all important factors affecting the development prospects of the industry.
Industry development cycleIt mainly includes the life cycle of the industry, the economic cycle and the seasonal characteristics held by some industriesIt is one of the sources of credit risk for production enterprises. When industries are in different life cycles, there are significant differences in the characteristics of their risks and returns.
The degree of competition in the industry,When the number of enterprises in a certain industry is large, and the scale of each enterprise is roughly the same, or the industry has excess production capacity and small product differences, the competitive pressure of the industry is relatively large. However, in a highly competitive industry, companies need to spend a lot of manpower and material resources to maintain their competitive position, and the greater the risks they take, and even face the risk of losing competitive advantage, losing market share, and reducing profitability.
While the technical level of the industry brings "good fortune", it will also have a fatal impact on some conformist industriesThe technological change of the industry has greatly changed the production mode of the society, helping enterprises to reduce production costs, improve production efficiency and improve product quality. However, if we fail to grasp the trend of new changes, an industry is likely to be fatally hit and die out due to the improvement of production technology in other industries.
The reasons for the formation of industry barriers are usually related to economies of scale, product differentiation, capital needs, cost advantages independent of scale, distribution channels and policies. When the industry barriers are low, new entrants to the industry will compete with existing enterprises for raw materials and market share, increase competition in the industry, and even face the risk of declining sales or being forced to reduce sales. However, if an industry has reached economies of scale, or has high capital requirements, or has formulated a strict access system, then the industry will form higher industry barriers, and the credit risk of natural enterprises will be correspondingly lower.
Substitute threat refers to the fact that the audience of products or services in two industries is relatively similar and can be substituted for each otherFor example, the alternatives to air services can be railways, roads, etcThe existence of substitutes will limit the quality of products or services, and virtually require enterprises to improve product quality, reduce production costs or develop product features to consolidate their market share. Therefore, companies need to pay attention to the threat level of alternatives when considering credit risk.
Enterprise competitiveness
Enterprise competitiveness specifically refers to the ability of enterprises to achieve their development goals through competition in market competition, including enterprise scale, market control, operational ability and technical level. The analysis of enterprise competitiveness can be used as one of the key factors to evaluate the risk of enterprises, because the changes in enterprise competitiveness factors can show the future competitiveness momentum of enterprises.
In terms of enterprise scale, it is mainly reflected in the total asset scale and sales revenue. Large-scale enterprises can take advantage of their economies of scale, enhance their comprehensive competitiveness, and achieve operational diversification, thereby improving profitability and occupying a dominant position in the industry, thereby enhancing the credibility of large-scale enterprises, reducing credit risks, and making it easier to meet financing needs.
In terms of market control, it refers to the ability of enterprises to achieve stable market share by improving their internal efficiency, continuously carrying out industrial innovation and technological innovation, controlling core technologies, standards and products, and ultimately having certain pricing power and market control. Market share and market share growth rate are important indicators to examine the market control and credit risk of enterprises。For example, Apple, with its iPhone and iPad series products, has a strong market control and high market share in the electronics market.
The strength of the operating capacity reflects the utilization degree and efficiency of the enterprise's assets, which determines the operating efficiency of the enterprise to a certain extent, and the credit risk of the enterprise with strong operating ability is often small. Generally, inventory turnover, accounts receivable turnover, and total asset turnover are all indicators that measure operating capacity. When the turnover frequency is higher and the turnover cycle is shorter, the faster the turnover of enterprise assets, and indicates that the company's operating capacity is stronger. However, it should be noted that if an enterprise achieves rapid capital turnover through reselling and selling, and there are threats such as intra-industry competition, outdated products or backward technology, its operating capacity may be greatly reduced, which will also increase the credit risk of the enterprise.
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Management level and corporate governance
The management strategy of an enterprise is an important factor to measure credit risk, and the management strategy can reflect the governance strategy, decision-making and policy of the company's business activities. The management level of an enterprise is measured, which generally includes the quality of managers, the quality of the workforce, corporate governance, financial policies, information disclosure, etc.
A good corporate management strategy can effectively supervise and motivate managers, improve the quality of the workforce, and play a role in improving the company's performance, shareholders and creditors can also benefit from it, and the company's credit rating is also higher. On the contrary, the lack of reasonable corporate governance will give managers the opportunity to pretend to be selfish, damage the interests of shareholders and creditors, increase the risk of default of bonds, etc., and ultimately lead to the decline of corporate credit ratings.
There are three main issues addressed by corporate governance:
First, the construction of evaluation and incentive mechanismsThe company has built a sound performance management and evaluation mechanism, which can reasonably evaluate the work performance of the first person, and at the same time motivate the best person to maximize the interests of the client in economic activitiesSecond, the construction of the company's organizational structure and the mutual supervision and balance of powerThe relationship between the board of directors and managers and other departments is reflected in the distribution of equity, and the centralized equity structure is conducive to motivating major shareholders to supervise the behavior of the first person. However, the result of too much concentration will lead to the phenomenon of "one dominant share", which will increase the risk of investment decisions;Third,External governance, how a company can improve its position in the industryHow to deal with the relationship with the company is an important concern of the company's external governance and risk management.
In addition,Information disclosure is an important responsibility of listed companies, and whether the company's information can be accurately and carefully transmitted to investors reflects the level of corporate governance. Audit independence is an important measure of information disclosure and financial transparency, and the objective performance of external audit improves the level of corporate governance, and creditors can obtain more true and objective financial data to reduce investment risks.
Financials
Because financial data can verify the value of the enterprise's business, the growth rate of the enterprise, and evaluate the management measures of the enterprise, the financial situation can be more quantitative, true and objective to reflect the credit risk of the enterprise. In general, companies with high credit levels and low default risk have lower operating risks and conservative financial policies. To evaluate the financial status of an enterprise, it is necessary to analyze the financial data from the four dimensions of capital structure, profitability, liquidity and cash flow, and at the same time, combined with the particularity of the enterprise, examine its unique surcharge ratio, and determine the risk degree of the enterprise's financial policy, so as to have a more comprehensive understanding of corporate credit risk.
Capital structureIt is an important indicator that reflects the financial status of an enterprise and determines the profit growth ability of an enterprise in the future periodIt is the distribution structure of long-term liabilities to equity, usually measured by the debt-to-capital ratio. A reasonable capital structure can help enterprises reduce financing costs, give full play to the regulating role of financial leverage, and enable enterprises to obtain a greater rate of return on their own funds. The rationalization of the capital structure of enterprises with higher credit levels is reflected in the fact that it is conducive to maximizing the value of the enterprise, reducing the cost of weighted average capital, and maintaining appropriate liquidity.
Profitability dimensionThe profitability of a business is an important factor in determining the quality of a business, and creditors usually pay close attention to the income, expenses and profits of the enterprise before and after investment. Enterprises with high profitability naturally have relatively low credit risk and are more likely to live in the favor of investors. However, it should be noted that the absolute value of profits is high and does not simply indicate that the company has strong profitability and low risk level.
Considering the credit risk of a business, you also need to pay attention to profit margins, return on investment, sales growth rates, and profit growth rates. When the values of these four ratios are relatively high, they are compared with the values of the four ratios of other companies in the same industry, so as to more objectively evaluate the profitability and credit risk level of the enterprise.
Corporate liquidityIt refers to the ability of assets to be successfully realized in a reasonable manner, and liquidity analysis is an important component of assessing corporate credit riskDivide. The liquidity dimension analyzes the financial situation, which mainly reflects the ability of the enterprise to repay debts, reflects the financial flexibility of the enterprise, and when the credit risk level of the enterprise is low, the liquidity shortage risk will occur.
The analysis of the financial status of an enterprise from the cash flow dimension can be used as an important indicator to judge the performance ability of an enterpriseIt mainly looks at the extent to which the cash flow ratio can cover financial expenses and liabilities, including the debt-to-principal ratio related to total debt, the operating profit payment ratio reflecting fixed expenses, and the capital coverage ratio to determine the available cash flow to cover capital expenditures. When you have more free cash flow at your disposal, the more flexible your finances will be, and you will be less prone to liquidity risk, so your credit level will be higher.
Event Risk
Event RiskIt is used to describe the risk of a typical event, which is excluded from existing ratings until the event is clearly defined. The timing of the event and the impact on the enterprise are difficult to use general credit analysis tools**, which is an unexpected risk. However, companies with more restructuring events will affect the reduction of corporate credit ratings.
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