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rating
A rating, or credit rating, is an assessment of the company creditworthiness. In the rating, the probabilities of default are calculated using mathematical-statistical methods based on default characteristics and divided into rating classes, which are abbreviated with rating codes.
objective
With the implementation of a rating, we want to achieve that companies on the one hand have to define their own structures, processes and characteristics and deal with them, on the other hand it is important to create a starting point in order to avoid a downgrading of the rating with change processes, which is reflected, for example, in increased capital costs would.
method
In order to assess and classify an evaluating company, we carry out an external and internal assessment. Here we distinguish between:
Quantitative Factors
In doing so, we evaluate the economic situation of the company (including liquidity, financial position, earnings, balance sheet development, capital structure, susceptibility to currency and financial crises) using balance sheet ratios such as profit, equity ratio and liquidity.
Qualitative Factors
We determine the characteristics of the qualitative factors either through an in-house workshop or through a questionnaire to be filled out by the management. The qualitative factors include characteristics such as management quality, (corporate) strategy, organizational structure, process organization, employee potential, structure of controlling and risk management and relationships with business partners.
Experience and environmental factors
Various positions are subsumed under this. On the one hand, the entire history that a bank, for example, has logged with the customer (how were agreed contracts complied with, were interest and advance payments made on time, etc.) and, on the other hand, external factors such as industry development, location conditions, supplier and customer relationships.
We determine the characteristics of the respective factors using recognized rating software. The result is shown in tabular form per factor/characteristics and as an overall score, based on the Standard and Poor rating code. Here, for example, AAA (triple A) stands for the highest credit rating, while C or even D for a very bad one.
It is now a matter of using the potential for improvement as part of a coaching process in order to prevent a downgrading of the rating. Because as I said, a reassessment of the rating can have far-reaching effects for the company concerned. If the rating deteriorates, the cost of capital increases because the conditions for raising outside capital become less attractive from the point of view of the debtor or bank, for example due to higher interest rates, the requirement for collateral or changed repayment conditions, since the probability of default increases.
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