Z score-refers to the quantitative evaluation of the financial situation and bankruptcy possibility of an enterprise. Z value is mainly evaluated by core financial indicators, which comes from the enterprise bankruptcy prediction model.
Z-score Model-A model to measure the bankruptcy risk of enterprises with a few key indicators. Each Z-value model has its own key indicators. Different Z-value models are suitable for different industries and different countries.
Basel accord-an international agreement signed by members of the central bank and the Bank for International Settlements, mainly about the minimum capital adequacy ratio requirements of banks. It is also called the BIS rule.
Confirmed letter of credit-a letter of credit in which both the issuing bank and the second accepting bank conditionally guarantee payment.
Retention of ownership clause-a clause in the sales contract that stipulates that the supplier has the ownership of the goods according to law before the customer pays.
Contract-a written document by which the borrower abides by the loan treaty. Once the borrower violates the contract, the bank has the right to punish the borrower.
Promissory note-a note that pays an agreed amount on a specified date.
Marginal loans-new loans. It can refer to increasing loans to existing customers or to new customers.
Marginal customers-refers to additional customers. Enterprises seeking growth opportunities will try their best to sell products to new customers, usually different types of customers. The credit risk of these new customers may be higher than that of existing customers.
Asset conversion loan-a short-term loan for short-term financing, for example, raising working capital seasonally.
Financial reports/statements-Financial reports or statements are an important source of information when analyzing the credit risk of enterprises. Financial reports and financial statements provide information about income, cost, profit, cash flow, assets and liabilities. The most important source of financial information is the annual report of the enterprise.
Financial ratio-financial ratio is generally used to analyze the reputation of enterprises. Each ratio has a specific analysis purpose and analysis object. The financial ratio is the ratio of one accounting subject to another. In financial analysis, financial ratio can reflect the meaning that quantity itself cannot.
Financial flexibility-when the main source of cash flow (usually transaction income) is insufficient, the ability of enterprises to raise funds from different channels, such as selling fixed assets and borrowing new debts.
Financial risk-the risk that an enterprise cannot repay its due debts in full and on time. The main indicator to measure financial risk is the financial leverage ratio, that is, the ratio of interest-bearing liabilities to shareholders' equity. The greater the financial risk, the higher the financial leverage ratio. Risk of profit change due to unexpected financial situation or environmental changes. When describing the debt and financial leverage of an enterprise, this term refers to the risk that the profit of the enterprise is not enough to meet the interest payment and other debt payment requirements.
Product differentiation)-refers to the strategy of improving product quality and selling products at higher prices, which is a way for enterprises to gain competitive advantage.
Exposure-financial risks faced by enterprises, classified by reason or source, such as credit risk exposure.
Factor-also known as accounts receivable agent. This is a company that manages and finances commercial debts on behalf of customers. Agency services generally include sales management, credit protection, payment of bills of lading for customers, and provision of financing guarantees.
Charge-a form of guarantee. In other words, once the borrower has difficulties in paying debts, the bank will pursue the mortgaged property before other creditors. There are generally two forms of mortgage: fixed mortgage of specific property and floating mortgage of a series of other properties (such as stocks and bonds).
Pledge-take away goods, negotiable instruments, proof of ownership of goods, etc. As a guarantee for the bank to pay in advance.
Electronic Data Interchange (EDI)- A method of transmitting data by electronic means. For example, EDI can be used to transmit payment invoices.
Order cycle-from accepting orders to issuing goods or providing services and issuing invoices for goods.
Tier 2 capital-non-core capital owned by banks.
Invoice discount (1 n voice discount)-Purchase the selected invoice at a discount, for example, trading bonds. Invoice discounters provide financing to customers by buying bonds, and the discount depends on the interest rate of prepaid goods.
Risk assets-bank assets with different risk weights (0- 100%) according to the possibility of loss.
Forfaiting-a way for bill buying banks to provide financing for the export of capital goods, through which buyers who produce capital goods can obtain medium and long-term credit.
Debt ratio-the ratio of total liabilities to total assets of an enterprise.
Uniform Customs and Practice for Documentary Letters of Credit (UCP)- a set of payment procedures for letters of credit commonly used in the world.
Dividend coverage-the ratio of after-tax income to dividends. For example, when the after-tax income is twice the shareholder's dividend, the dividend protection multiple is 2.
Management account-a budget statement or forecast report used for internal management of an enterprise. These reports are not always available to credit analysts. The forecast report is likely to be too optimistic to be believed.
International Accounting Standards Board (IASB)-IASB is an international organization responsible for issuing accounting standards.
Country risk-the risk that the financial position and solvency of an organization operating in a specific country are affected by changes and developments in the host country.
Over-trading-if the enterprise expands rapidly and the long-term capital to provide funds is insufficient, then the enterprise is over-trading. Over-reliance on short-term credit to support business operations. In fast-growing enterprises, excessive transactions are more obvious, such as delaying payment and making full use of overdraft credit lines provided by banks.
Consolidated statements-The financial statements of all companies in a comprehensive enterprise group are consolidated statements, which are published by the listed parent company (holding company). However, enterprise groups are not legal entities. The analysis of consolidated statements is meaningful only when the parent company obtains credit or the parent company provides guarantee for the loans borrowed by its subsidiaries.
Bad debts-unrecoverable overdue accounts.
Accounting standards-Accounting standards provide more detailed accounting methods for enterprises than the Company Law, but they still leave room for the preparation of enterprise financial statements. The international organization responsible for issuing accounting standards is the International Accounting Standards Board (IASB). The major countries in the world have adopted the accounting standards promulgated by the International Accounting Standards Board, so the accounting standards used by all countries in the world have certain uniformity.
Currency group)-Countries whose currency exchange rate is closely related to a major currency are collectively referred to as currency groups. Such as Dollar Group and Deutsche Mark Group.
Value chain-also known as supply chain-refers to all links of an industry from raw material production to final sale of finished products to consumers.
Counterparty risk-the risk caused by the other party's non-compliance with the terms of the contract.
Operating cash flow-the actual net cash income (or net cash expenditure) obtained by an enterprise from operating activities in a certain period of time.
Net cash flow-the change of cash balance over a period of time.
Return on equity-an indicator to measure business risk (profit rate and asset turnover rate) and financial risk.
Competitive advantage-the so-called competitive advantage refers to the advantages that an enterprise has over its competitors in terms of the goods or services it provides. Competitive advantage is very important for the long-term development and survival of enterprises.
Income statement (1 ncome statement)- (called income statement in Britain) should disclose the profit and loss of all current items and exceptions. These projects may greatly increase or decrease the profits of enterprises.
Profit margin-the ratio of enterprise profit to sales revenue, usually expressed as a percentage. There are two forms of profit rate: gross profit rate and net profit rate. As the profit rate decreases, the profit rate will also decrease.
Interest guarantee-interest guarantee is the ratio of interest and pre-tax income to interest expenditure. The reduction of interest guarantee multiple means that the financial situation of enterprises is deteriorating.
Current ratio-the ratio of current assets to current liabilities. In most enterprises (but not all enterprises), current assets are lower than current liabilities, which means lack of liquidity.
Liquidity-Liquidity refers to the ability to convert assets into cash. The liquidity of an enterprise can be measured by the ratio of its quick assets to its current liabilities.
Liquidity run-the sharp increase in cash expenditure makes it difficult for enterprises to create new cash flow (liquidity).
Lien-a form of guarantee. It enables the bank to reserve the right to claim the borrower's property until the borrower pays off the debt.
Gross profit-Gross profit is obtained by subtracting the cost of sales from the sales revenue.
Trade reference-reference information provided by other suppliers about the credit status of potential new customers. Reference opinions should indicate the duration of the trade relationship between suppliers and customers, and the reliability of customers' timely repayment of arrears.
Unable to repay the loan. Bankruptcy procedures vary from country to country.
Receiving ship-this is a British term, which refers to the process of the creditors of the enterprise appointing the bankruptcy administrator. The bankruptcy administrator is responsible for managing and distributing the assets demanded by these creditors. The bankruptcy administrator pays the proceeds from asset management to creditors. Bankruptcy management often leads to enterprise liquidation.
Liquidation-the process of terminating an enterprise and its affairs. This work is carried out by the appointed liquidator.
Financial cash flow-financial cash flow is cash payment or income caused by long-term capital changes, such as issuing new shares and obtaining loans.
Business risk-refers to the possibility that the sales revenue or profit rate of an enterprise will decrease due to changes in the business environment (new competition, technological progress, etc.). ) Business risk is a long-term risk.
Trade credit-credit provided by suppliers to customers.
Goodwill-the difference between the purchase cost of the acquired enterprise and the market value of the acquired assets is the acquired goodwill. The most common accounting method of goodwill is to write off goodwill with reserves, so that the cost of goodwill does not have to be amortized from future profits.
Auditor's report-The audit report shows that the auditor believes that the accounting statements truly and objectively reflect the operating conditions of the enterprise and meet the requirements of relevant laws.
Days of Outstanding Sales (DSO)- The average number of days required to collect accounts.
Collection cycle-from issuing payment invoice to receiving payment.
Credit occupancy ratio-the ratio of the total debt currently owed by the customer divided by the annual purchase amount of the customer. The higher the ratio, the higher the credit risk.
Quick ratio or acid test ratio-Quick ratio (acid test ratio) is the ratio of quick assets (current assets minus inventory) to current liabilities. If the current liabilities are higher than the quick assets, it means that the liquidity of the enterprise is insufficient.
Current assets-cash or assets that can be quickly converted into cash.
No Credit Interval (NCI)—— Another indicator to measure liquidity. The number of days without credit interval (NCI) is the length of time that an enterprise can use its own realizable resources to fund its business activities before it runs out of cash, assuming that the enterprise no longer sells products.
Cash flow forecast-the estimation of future cash flow or cash position of an enterprise often needs to make assumptions about future cash position according to historical income and cost.
Credit utilization-the extent to which customers use existing financing lines. It is expressed as the percentage of the current unpaid debt amount to the credit limit.
Credit analysis-a systematic program for analyzing and measuring credit risk.
Credit analyst-someone who analyzes the reputation of a business. Credit analysts must collect relevant information about the industry in which the enterprise is located. In addition, it is necessary to make objective judgments on the top managers of enterprises. Analysts need to study the degree of specialization, experience and stability of enterprise management. If the chairman (president) and CEO of an enterprise are the same person, the credit risk of the enterprise will depend on the individual's personality and management style.
Credit risk-the risk that the debtor delays or refuses to pay the debt.
Credit observation-Credit institutions track and monitor an organization's debt credit, so as to update the original rating at any time. Also called rating scale.
Credit score-based on some main characteristics of the business, the total credit score is obtained, so as to evaluate the reputation of customers and classify the credit. By studying the financial ratio of enterprises, the reputation of enterprises can be measured.
Credit rating-a quantitative judgment or formal opinion on the possibility of paying interest in full on time on bonds or other debt securities and the possibility of repaying the debt principal in full at maturity. Credit rating is the responsibility of specialized agencies. The credit rating of long-term debt is AAA(3A).
Credit cycle-from customer placing an order to debt payment.
Letter of credit-an international payment method for export sales. Refers to the conditional payment guarantee issued by any one or two banks on behalf of the buyer to the supplier.
Reputation-the reputation of long-term loans of enterprises depends on the profitability and expected profitability of enterprise loan investment projects.
Industry risk (1industry risk)-the risk that all enterprises in an industry may lose profits due to industry recession.
Creative accounting-Creative accounting stems from the diversity of accounting policies that enterprises can choose to use when permitted by relevant laws and regulations. In addition, the need for judgment also leaves room for enterprises to adjust data.
Creative accounting-using favorable accounting standards to prepare income statement and balance sheet. Opportunity-seeking accounting method can be used to improve the reported profit and asset value and cover up the real financial situation of enterprises.
Bank credit-credit provided by banks to customers.
Profitability analysis-There are three main indicators reflecting the profitability of an enterprise, namely: return on capital, profit rate and asset turnover rate.
Working capital-usually refers to inventory, creditor's rights and debts. Generally speaking, inventory plus creditor's rights minus debt equals working capital.
Priority fee-refers to the fee that must be paid to avoid the imminent flow risk. In addition to the expenses required for normal transactions (such as paying wages), it also includes paying interest and taxes.
List of overdue debtors-a report that analyzes and quantifies overdue accounts.
Depreciation-depreciation is a measure of the loss and value of fixed assets caused by long-term use, technology or market progress. Depreciation of fixed assets should be deducted from profits. The depreciation amount of fixed assets is determined according to the judgment of enterprise management and the expected service life, expected net salvage value and depreciation method of fixed assets.
Status Report-A detailed report on the financial status and reimbursement records of the enterprise. Status reports can be provided by credit reporting agencies or banks.
Reserve accounting-the accounting process of recording gains, losses or expenses as an increase or decrease in the amount in the reserve account, rather than as a profit, loss or expense item in the annual income statement.
Capital adequacy ratio-refers to having enough long-term capital to ensure financial security. For banks, capital adequacy ratio refers to having enough capital to prevent the risk of deposit loss brought to depositors by transaction losses (such as bank bad debts).
Return on assets (return on capital)-the product of profit rate and asset turnover rate. The higher the return on capital, the better.
Asset turnover rate-asset turnover rate focuses on the sales volume of enterprises, which can measure the sales income per L of assets and reflect the profitability of enterprises.
Discretionary cash flow-Discretionary cash flow is the cash flow that enterprises do not have to pay or collect, and they are not directly related to business activities. Disposable cash flow includes cash flow for purchasing and selling fixed assets and cash flow for paying dividends.
The minimum leverage ratio is the requirement of capital adequacy ratio, which requires the capital of a bank to be no less than a certain proportion of its assets.
Priority cash flow-priority cash flow is the non-transactional cash expenditure of the enterprise, which is used to avoid the financial crisis of the enterprise, mainly including the payment of interest and taxes.
A-score model-a model to measure the bankruptcy risk of enterprises with a few key indicators. The model considers both financial indicators and non-financial indicators. Analysts score each index according to the performance of the enterprise, and finally add up all the scores to get the A value of the enterprise. If a certain value is higher than a certain standard, it means that the bankruptcy risk of the enterprise is high. Another model to measure the bankruptcy risk of enterprises is Z-value model.
Swap-a contract signed by both parties to exchange a series of future payment behaviors. In an interest rate swap agreement, one party exchanges a fixed interest rate for the other party's floating interest rate.
Operating cash flow-the cash flow generated in the operation of an enterprise, which is generally net value. That is, the cash amount obtained after deducting the cash needed for operation from the customer's payment.
Internal financing ratio (1 n terminal financing ratio)-The internal financing ratio measures how much capital expenditure of an enterprise comes from operating cash flow.
Event of Default-The borrower fails to perform the contract.
Cash flow analysis-an analytical method to measure the ability of enterprises to repay loans and other debts with cash. The analysis methods of cash flow ratio include: comparing the changing trend of the ratio itself; Compare with the ratio of other enterprises. Sometimes it can also be compared with the value or minimum value of the sales ratio.
Credit reporting agency-an institution that provides customers with enterprise credit information.
Tier 1 capital-the core capital of a bank, including equity capital and reserves, but excluding revaluation reserves.
Working capital-enterprise's investment in current assets. The correct definition of working capital is inventory plus creditor's rights minus current liabilities. The amount of working capital required by enterprises often fluctuates, sometimes greatly. The demand for working capital is related to the business cycle of the enterprise and cash conversion cycle.
Overdue Debtor Report-A report that lists overdue receivables and the length of overdue period.
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