Measuring and Analysing Credit Risk

Measuring and Analysing Credit Risk

ISBN13: 9781522572800|ISBN10: 1522572805|EISBN13: 9781522572817
DOI: 10.4018/978-1-5225-7280-0.ch003
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MLA

Vojo Bubevski. "Measuring and Analysing Credit Risk." Six Sigma Improvements for Basel III and Solvency II in Financial Risk Management: Emerging Research and Opportunities, IGI Global, 2019, pp.37-112. https://doi.org/10.4018/978-1-5225-7280-0.ch003

APA

V. Bubevski (2019). Measuring and Analysing Credit Risk. IGI Global. https://doi.org/10.4018/978-1-5225-7280-0.ch003

Chicago

Vojo Bubevski. "Measuring and Analysing Credit Risk." In Six Sigma Improvements for Basel III and Solvency II in Financial Risk Management: Emerging Research and Opportunities. Hershey, PA: IGI Global, 2019. https://doi.org/10.4018/978-1-5225-7280-0.ch003

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Abstract

This chapter discusses the measurement and analysis of credit risk. A factory plans to accomplish a project and applies for credit to a bank to finance the project. The bank considers a loan to finance the factory project and assesses the credit risk. The chapter presents the analysis and measurement of different aspects of credit risk in order to answer how much should be lent to the factory project and for how long considering the risk inherent in the transaction. Credit risk is assessed considering: 1) Cash flow projection; 2) Count of negative cash flow; 3) Maximum negative cash flow; 4) Net Present Value (NPV) based on dividends; 5) Internal Rate of Return (IRR) based on dividends; 6) Capital asset NPV and IRR; 7) Solvency loan; 8) Risk of bankruptcy; 9) Financial Analysis Measures such as Gross Margin, Interest Coverage, Financial Coverage, Return on Investment, Return on Assets and Net Worth.

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