1

3 4 5 6 7 8

Instructions for using this work book This work book is structured in four worksheets 1.1. Instructions 1.2. Financial Analysis 1.3. MyCRA rating sheet 1.4. Rating Definition Please do not alter the formulae in any of the worsheet cells. This not a fully developed rating model. This is created only to illustrate the credit rating process for the students. 2.1 In financial analysis worksheet all cells with O as value or which have been darkened, have formulae and should not be overwritten. 2.2 In the MyCRA worksheet coloured cells have formulae and should not be overwritten. Complete financial analysis using the "Financial Analysis" sheet Refer to MyCRA Manual for detailed instructions on rating scores Refer to Rating Definition sheet to assign the letter grade In the comments cell mention its meaning from rating definition Remember this rating does not factor in discussions with management, which can lead to reassessment of scores and change in rating Credit ratings suffer from many limitations but are still found to be very useful in taking credit decisions if the limitations are kept in your mind while taking the credit decisions. Real test of any rating is seen only over years on the basis of rating stability and sensitivity to changes in fortunes. But a well thought out system gives fair indication of probability of default of a borrower.

Financial Analysis

FINANCIAL YEARS XYZ Ltd. CURRENT ASSETS Stocks - Raw Material - Work-in Progress - Finished Goods -Spares etc.

YEAR (-2) 2010

YEAR (-1) 2011

YEAR 0 2012

Projections 2013

Total - Stocks
Debtors - Trade Debtors - Bills Receivable

0.00

0.00

0.00

0.00

Total - Debtors
Cash & Bank Balances Investments - Marketable Other Current Assets

0.00

0.00

0.00

0.00

Total - Current Assets

CURRENT LIABILITIES Creditors Bills Payable Bank Borrowings Due to Bank (O/D, T/R) S.T.Debt

0.00

0.00

0.00

0.00

Total - Bank Borrowings

Taxation - Current Dividends Current S.T. borrowings (Non-Bank) Other Current Liability Loan installment

0.00

0.00

0.00

0.00

Total - Current Liabilities

0.00
Page 4

0.00

0.00

0.00

Financial Analysis

Page 5

Financial Analysis

SUMMARY OF CURRENT ASSETS AND CURRENT LIABILITIES

Net Working Assets Total Cash Assets Net Cash Assets Net Current Assets

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

Page 6

Financial Analysis

FIXED ASSETS (WDV)

Land & Buildings Plant & Machinery Motor Vehicles Furniture & Fixtures Investments - Subsidiary & Group Companies Other Fixed Assets Total - Fixed Assets

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

LONG TERM LIABILITIES Term Loans - Rupee Loans 1 to 3 years From Fand R) 3 to 5 years From GSFC Over 5 years Int free from DIC - Foreign Currency Loans(in INR)

Total - Term Loans

Debentures Deferred Tax Financial Leases Other Long Term Debt

0.00

0.00

0.00

0.00

Total - Long Term Liabilities

0.00

0.00

0.00

0.00

Page 7

Financial Analysis

SHAREHOLDERS FUNDS Equity Share Capital Preference Share Capital Reserves - General Reserve - Capital Reserve - Share Premium - Profit & Loss Account - Revaluation - Others P & L A/c

Total - Reserves
Intangibles - Goodwill - Preliminary Expenses Not Written Off - Others P & L A/c

0.00

0.00

0.00

0.00

Total - Intangibles Total - Shareholders Funds

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

SUMMARY OF NET LONG TERM ASSETS AND LIABILITIES Net Worth

- Shareholders Funds Route - Assets less Liabilities Route - Accuracy Check

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

Page 8

Financial Analysis

PROFIT AND LOSS STATEMENT Sales (Net of Excise Duty) Cost of Sales (Manufacturing Costs)

Gross Profit
Selling and Admn. Expenses Depreciation

0.000

Operating Profit
Interest Cost Other Income Non-Operating Expenses Profit / (loss) from Sale of F.Asset Income from Investments - Profit / (Loss) on Sale of Invts - Interest / Dividend Income

Total - Income from Invts.

Non-Cash Exp. Written - Off Provision for Income Tax

PBDIT PBIT PBT PAT

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

Page 9

Financial Analysis

APPROPRIATIONS - Dividends - Transfer to Gen. Reserve

- Balance in P&L Account

( transfer to Balance Sheet)

0 0

0 0

0 0

0 0

Total - Appropriations

Page 10

Financial Analysis

FINANCIAL RATIOS 1. Profitability Ratios (in %age)

Gross Profit / Sales Operating Profit / Sales PBT/ Sales PAT/ Sales Retained Profit / PAT Return on Capital Employed Return on Equity 2. Capital Structure Debt / Equity Total Liability / Net Worth PBIT / Interest Expense(Intr. cover)

#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0!

Free cashflow from operations to total debt(PAT+Depreciation+Dividend+net CA of last year - Net CA of current years)/TL+ Bank Borrowings+Loan inst due in current year) Operating Income(PBDIT) to ST Borrowings

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0!

#DIV/0! #DIV/0!

Debt Service Coverage(=(PBDITTax)/(Repayment installment + all interest) 3. Activity Ratios

#DIV/0!

#DIV/0!

#DIV/0!

#DIV/0!

Page 11

Financial Analysis

Stock Days Debtor Days Creditor Days 4. Stability Ratios Current Ratio Acid Test Ratio 5. Break-Even Analysis Sales Variable Costs Contribution Margin (In %age) Fixed Costs Break-Even Point Operating Leverage Financial Leverage 6. Efficiency Ratios

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0!

#DIV/0! #DIV/0!

#DIV/0! #DIV/0!

#DIV/0! #DIV/0!

0.00 0.00 #DIV/0! 0.00 #DIV/0! #DIV/0! #DIV/0!

0.00 0.00 #DIV/0! 0.00 #DIV/0! #DIV/0! #DIV/0!

0.00 0.00 #DIV/0! 0.00 #DIV/0! #DIV/0! #DIV/0!

0.00 0.00 #DIV/0! 0.00 #DIV/0! #DIV/0! #DIV/0!

Page 12

Financial Analysis

Fixed Assets Efficiency Working Capital to Sales Ratio

#DIV/0! #DIV/0!

#DIV/0! #DIV/0!

#DIV/0! #DIV/0!

#DIV/0! #DIV/0!

DETAILS OF FIXED ASSETS Land and Building Gross Block Accumulated Depreciation

Net Block
Plant and Machinery Gross Block Accumulated Depreciation

0.00

Net Block
Furniture and Fixtures Gross Block Accumulated Depreciation

0.00

Net Block
Vehicles Gross Block Accumulated Depreciation

0.00

Net Block
Other Fixed Assets Gross Block Accumulated Depreciation

0.00

Net Block

0.00

Page 13

Financial Analysis

Summary of Fixed Assets

Total Gross Block Total Accumulated Depreciation Total Net Block

FUNDS FLOW STATEMENT Sources of Funds

0 0 0

0 0 0

0 0 0

0.00 0.00 0.00

Profit after Tax add: Depreciation add: Non-Cash Expenses Wr. Off
Increase in Share Capital

0 0

0 0 0 0 0

0 0 0 0 0

0 0 0

- Equity Capital - Preference Capital

Increase in Long Term Liabilities

- Term Loans - Debentures - Other Long Term Debt Decrease in Working Capital
Sale of Fixed Assets

0 0 0 0

0 0 0 0

0 0 0 0

Decrease in Invt. in Group Subs Co. Total - Sources of Funds Application of Funds Purchase of Fixed Assets Decrease in Long Term Liabilities - Term Loans - Debentures - Other Long Term Debt Redemption of Preference Capital Increase in Working Capital

0 0

0 0

0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

Page 14

Financial Analysis

Dividend Paid to Shareholders

Page 15

Financial Analysis

Increase in Invt. in Group Subs. Co. Total - Application of Funds Diff of Source - Appl. CASH FLOW STATEMENT PBIT add: Depreciation add: Non-Cash Exp. written-off (Profit)/Loss on Sale of F.Assets Gross Cash Flow from Operation 0 0 0 0 0

0 0 0

0 0 0

0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

Page 16

Financial Analysis

Weighted Average OF PAST 3 YEARS

0.00 0.00 0.00 0.00

0.00
0.00

0.00
0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00
0.00 0.00

0.00

0.00
Page 17

Financial Analysis

Page 18

Financial Analysis

0.00 0.00 0.00 0.00

Page 19

Financial Analysis

0.00 0.00 0.00 0.00

0.00 0.00

0.00

0.00
0.00 0.00

0.00

Page 20

Financial Analysis

0.00

0.00 0.00 0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00 0.00

Page 21

Financial Analysis

0.00 0.00

0.00
0.00 0.00

0.00
0.00

0.00

0.00

0.00 0.00 0.00 0.00

Page 22

Financial Analysis

0.00 0.00

0.00 0.00

Page 23

Financial Analysis

#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

#DIV/0!

#DIV/0!

#DIV/0! #DIV/0!

Page 24

Financial Analysis

#DIV/0! #DIV/0! #DIV/0!

#DIV/0! #DIV/0!

0.00 0.00 #DIV/0! 0.00 #DIV/0! #DIV/0! #DIV/0!

Page 25

Financial Analysis

#DIV/0! #DIV/0!

0.00 0.00

0.00

0.00 0.00

0.00
0.00 0.00

0.00
0.00 0.00

0.00
0.00 0.00

0.00

Page 26

Financial Analysis

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00

0.00 0.00 0.00 0.00 0.00

Page 27

Financial Analysis

0.00

Page 28

Financial Analysis

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

Page 29

MyCRA

Name of the assessee Company XYZ Ltd. Group to which it belongs ABC Group Audited financials used for rating assessment Scoring Scale

1 1.1 1.1.1 1.1.2 1.1.3 1.2 1.2.1 1.2.2 1.3 1.3.1 1.4 1.4.1 1.4.2 1.4.3 2 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.1.7 2.1.8 21..9 2.2 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.2.6 2.2.7 2.3 2.3.1

Risk Type Management Risk

Track Record
Experience in the industry Board Composition Business and financial policy

Weight 25
10
5 2 3

Credibility
Ability to meet sales projections Ability to meet profit projections

5
2 3

Payment Record
Market reputation on meeting all obligation without fail

5
5

Other Factors
Management Proactiveness Strategic Initiatives Group Support

5
2 1 2

Financial Risk
EFP (Expected Financial Performance)
ROCE - EFP Operating Margin EFP Interest Coverage Total Outside Liabilities/Total Net Worth - EFP Operating Income/Short Term Borrowings Current Ratio DSCR - EFP Accounting Quality - EFP Free cashflow from operations/Total debt

40
20
4 4 2 2 2 2 2 2 2

CFA Current Financial Assessment

ROCE - CFA Operating Margin CFA DSCR CFA Total Outside Liabilities/Total Net Worth - CFA Accounting Quality - CFA Interest Coverage Free cashflow from operations/Total debt

30
5 5 4 4 4 4 4

Financial Flexibility
Ability to raise Capital

5
5

Page 30

MyCRA

3 3.1 3.1.1 3.1.2 3.1.3 3.1.4 3.2 3.2.1 3.2.2 3.2.3

Business Risk
Operating Efficiency
Integration of operations Capacity utilisation Access to cost effective technology Bargaining power with suppliers

20
10
3 2 3 2

Market Position
Consistency of quality Customisation of Product Diversification of markets

10
3 2 3

3.2.4 4 4.1

Long term contracts or assured off-take

Industry Risk
Choose appropriate score

15
15

5 Overall Score
6 Letter Grade assigned to the company
* **
*** ****

Refer to Rating Definition sheet to assign the letter grade In the comments cell mention its meaning Refer to MyCRA Manual for detailed instructions on rating Complete financial analysis using the "Financial Analysis" sheet Pick up appropriate industry rating score from the list below Score Auto Auto Ancillary Capital goods & gen engg Cement & non-metallic products Chemicals Construction & Real estate Consumer durables FMCG Food Processing Hotels Metals & minerals NBFC Others Paper & stationery Petroleum
Page 31

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

MyCRA

16 17 18 19 20 21

Pharma Power Services Textiles Trading Transport services

Page 32

MyCRA

Incorporated in Year 1984 Group strength

0 to 6 (6 being the Best)

Score level
0.00

Weighted Score 0.00

0.00 0.00 0.00

#DIV/0!
#DIV/0!
#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

#DIV/0!
#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

0.00

Page 33

MyCRA

0.00
0.00

0.00

4.00 4.00

4.00

#DIV/0!
A

Page 34

MyCRA

Page 35

MyCRA

Belongs to Industry Metals and Mining Industry

Reasoning for the score assigned/ Comments

Page 36

MyCRA

You will assign the number as per your report in D57

Investment Grade

Page 37

Rating Definition

Grade

Degree of safety with regard to servicing Debt obligations

Grade I

Very High

Grade II

High

Grade III Grade IV Grade V

Adequate Average Below Average

Grade VI Grade VII Grade VIII Grade IX Grade X

Inadequate Low High Risk Substantial Risk Default

Page 38

Rating Definition

Comments

Range of score From The fundamentally strong debt servicing capacity of such companies is most unlikely to be adversely affected by changes in circumstances. Adverse business conditions are unlikely to affect debt servicing capacity. Such companies differ in safety from those in Grade I only marginally. Changes in circumstances are more likely to affect debt servicing capacity than for higher grades. Debt servicing capacity could weaken in view of changing circumstances While such companies are less susceptible to default than those in lower grades, uncertainties faced by them could adversely affect debt servicing capacity. Uncertainties faced by issuer could lead to inadequate capacity to make timely debt repayments Debt servicing capacity is highly vulnerable to adverse changes in circumstances. Adverse business or economic conditions are likely to lead to lack of ability or willingness to service debt obligations. Timely payment of debt would continue only if favourable circumstances continue Debt servicing capacity is in default and returns from this may be realised only on reorganisation or liquidation To

5.5

<=6

4.7 4.2 3.7

<5.5 <4.7 <4.2

2.7 2.2 1.7 1.5 1 0

<3.2 <2.7 <2.2 <1.7 <1.5 <1

Page 39

Rating Definition

Letter Grade

Rating Type Investment Grade Investment Grade Investment Grade Investment Grade Investment Grade Speculative Grade Speculative Grade Speculative Grade Speculative Grade Default Grade

AAA AA A+ A BBB BB+ BB BBC D

Page 40