Rating

A rating or credit ranking is an assessment of the creditworthiness of a company. With a rating is by mathematical and statistical methods based on key attributes the failure rate is calculated. Subsequently the company will be assigned a ratings class with abbreviated codes of rating.

 

 

Objective

By carrying out a rating we want to ensure that the company defines and explains its structures, processes and qualities of character. In addition, a downgrade - for example, by increased capital costs - as a consequence of the change processes will be avoided. 

Method

For the assessment and valuation of the company to be assessed, we conduct an external and internal evaluation. Hereto we distinguish:

Quantitative factors

We assess the economic conditions of the company based on balance sheet ratios such as profit, capital and liquidity. These conditions are: liquidity, financial and income situation, development of the balance sheet, capital structure, vulnerability to currency and financial crises. 

Qualitative factors

We determine qualitative factors using an In-house Workshop or a survey of the management. Here we will use features such as quality of management (corporate) strategy, organizational structure, process organization, and potential of staff, construction of controlling and risk management and relationships with business partners.

Experience and environmental factors

In this part different views will be highlighted, thus generating a historical overview. Think of a bank that stipulates how agreements were complied with its customers, or how interest payments and depreciation payments were met on time. Furthermore also particular external factors such as industry development, conditions of the location and supplier and customer relationships take an important part. 

We can determine the value that a factor has, by means of recognized rating software. The result is tabulated for each factor / value displayed, as well as the total score, of which the display is inspired by the classification of the Standard & Poor’s code. AAA (triple A) for example represents the highest credit rating, C and D on the other represent a very poor rating. 

As part of the coaching project it obviously is the intention that the potential of improvements is used to prevent depreciation of the rating. As previously mentioned a revaluation of the rating can have far-reaching consequences for the company. If the rating worsen, the cost of capital increase because the conditions to attract foreign capital for debtors and banks become unattractive: for example by higher interest rates, the requirement of collateral, or revised repayment terms, because the probability of failure increases.