Assignment 4: ERMC_Credit Risk Management ARORA
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Assignment 4: ERMC_Credit Risk Management ARORA
Details
This is an individual assignment. If you need assistance, my associate and I are available through normal channels.
Assessment
The entire assignment is worth ten points and the points for each question are listed. Correct
answers, while important, are not as important as correct analysis. Show your work. More credit will be given for correct analysis than for correct final numbers. Conversely, missing analysis or incorrect analysis will be more heavily deducted than incorrect final numbers.
Submission
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Directions
For each question, please provide both the analysis (equations and/or verbal thought processes) and final equations.
1. (4 points) The following is data that is provided for a C&I Firm- Toys Inc.
|
|
2021 |
2022 |
|
Sales |
16,900,000 |
20,280,000 |
|
Net Profit |
954,466 |
1,317,379 |
|
Additional Income |
0 |
0 |
|
EBITDA |
954,466 |
1,317,379 |
|
Operating Cash Flow (OCF) |
1,550,795 |
1,921,808 |
|
Debt Service for the Loan |
1,488,303 |
1,488,303 |
a. Calculate DSCR (Debt Service Coverage Ratio) for 2021 and 2022. Assume Operating Cash flow (OCF) reflects the current Income.
b. Explain what’s driving the DSCR change between the years and in which year is Toys Inc more risky?
2. (2 points) Through the Cycle (TTC) PD is higher in stressed part of the economic cycle than PIT PD
a. True
b. False
3. (4 points) Calculate the Z score (using the Z score for private credit), and assess the riskiness of Crazy Inc (a private company)
|
Assets |
|
Liabilities and Equity |
|
|
Current Assets |
400,000 |
Total Current Liabilities |
500,000 |
|
Total Fixed Assets |
200,000 |
Total Debt |
550,000 |
|
|
|
Retained earnings |
10,000 |
|
|
|
Total Equity |
40,000 |
|
Total Assets |
600,000 |
Total Liabilities + Equity |
600,000 |
|
Profit and Loss |
|
|
Sales |
100,000 |
|
EBIT |
5,500 |
|
|
|
Formula for Z Score Private Company
. Z-score for Private companies: Z = 1.2 A + 1.4 B + 3.3 C + 0.6 D + E
s(it)al DB==BooK(Ret)
u(n)i(g)ty(s)
2023-07-29