Rating Models and Validation - Oesterreichische Nationalbank

Capital Market-Oriented/International Companies
The main source of credit assessment data on capital market-oriented/international
companies is their annual financial statements. However, financial statement
analyses are based solely on the past and therefore cannot fully depict a
companyÕs ability to meet future payment obligations. To supplement these
analyses, cash flow forecasts can also be included in the assessment process. This
requires a qualitative assessment of the companyÕs future development and planning
in order to assess how realistic these cash flow forecasts are.
Additional qualitative information to be assessed includes the management,
the companyÕs orientation toward specific customers and products in individual
business areas, and the industry in which the company operates. The core objective
of analyzing these information categories should always be an appraisal of an
enterpriseÕs ability to meet its future payment obligations. As capital marketoriented/international
companies are often broad, complex groups of companies,
legal issues — especially those related to liability — should be examined
carefully in the area of qualitative information.
One essential difference between capital market-oriented/international
companies and other types of enterprises is the availability of external information.
The capital market information available may include the stock price and
its development (for exchange-listed companies), other published information
(e.g. ad hoc reports), and external ratings.
Other enterprises which prepare balance sheets
(not capital market-oriented/international)
Credit assessment for other companies which prepare balance sheets is largely
similar to the assessment of capital market-oriented/international companies.
However, there are some differences in the available information and the focuses
of assessment.
In this context, analyses also focus on the companyÕs annual financial statements.
In contrast to the assessment of capital market-oriented/international
companies, however, these analyses are not generally supplemented with cashflow
forecasts, but usually with an analysis of the borrowerÕs debt service capacity.
This analysis gives a simplified presentation of whether the borrower can meet the
future payment obligations arising from a loan on the basis of income and expenses
expected in the future. In this context, therefore, it is also necessary to assess the
companyÕs future development and planning in qualitative terms.
In addition, bank account activity data can also provide a source of quantitative
information. This might include the analysis of long-term overdrafts as
well as debit or credit balances. This type of analysis is not feasible for capital
market-oriented/international companies due to their large number of bank
accounts, which are generally distributed among multiple (national and international)
credit institutions.
On the qualitative level, the management and the respective industry of
these companies also have to be assessed. As the organizational structure of
these companies is substantially less complex than that of capital market-oriented/international
companies, the orientation of business areas is less important
in this context. Rather, the success of a company which prepares balance
sheets hinges on its strength and presence on the relevant market. This means
Rating Models and Validation
Guidelines on Credit Risk Management 19