From the course: Financial Modeling Foundations
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Modeling in banking - Microsoft Excel Tutorial
From the course: Financial Modeling Foundations
Modeling in banking
- [Narrator] One of the most common uses for financial models is evaluating credit risk, now and in the future for a particular firm. To do that though, you need to understand what credit risk is and the various categories or buckets the firm can fall into. In general, credit ratings range from triple A, to D, as in default. Nobody fails in credit ratings. There's no F category. D as in default is the lowest, I like to say. Now, there's relatively few triple A firms out there. So, we'll simply start by talking about double A firms, which represent very low credit risk. In general, these are firms that are growing and they have very low levels of leverage. They typically have strong positive cash flow generation, and they make consistent dividend payments to their investors. Even in a downside case, like a recession, the company should still be able to pay dividends and have strong financial ratios. Thus if we're evaluating a financial model and we're trying to see whether a company…
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