Assess the credit quality of a company • 11.06.09
The various steps of the analysis do not apply to banks and financial institutions; these differ from other companies, because they are highly leveraged due to the nature of their business, as their main business is to manage their assets. An indepth analysis of the credit risk of banks will follow later.
There are several documents which can be used to assess the credit quality of a company. These are the 10K (Annual Statement), 10Q (Quarterly Statement) and the annual report and quarterly financial report presented to the shareholders. If a company has a public offering of a new security it has to provide a prospectus. Every prospectus has a section where all current and potential risks to the company have to be disclosed.
Regulated companies like utilities and banks must also prepare documents for regulators. Besides useful financial data, the annual report contains the shareholder’s letter where the management discusses business strategies.
