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Using Rating for Credit Risk Measurement

In: New Trends in Finance and Accounting

Author

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  • Anna Siekelová

    (University of Žilina)

Abstract

Credit risk is the risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation. The rating can be a relatively simple and quality tool for investors. It is an independent evaluation of the entity’s ability and willingness to meet its future obligations. Rating is a standard product of the financial and capital markets, whereby it is possible to determine the risk of the entity. Risk rating analysis consists in evaluating financial (“hard factors”) and non-financial factors (“soft factors”). Hard facts are calculated from the financial statements of the company through the implementation of financial-economic analysis to provide a reliable statement about the financial stability of the company and its financial health. The values of indicators which are achieved are combined according to their significance, and then they are transferred to the internal rating scale. Then, this value is used to express quantitative rating of entity. This contribution deals with calculation of quantitative criteria. The aim of the paper is determining the rating of selected companies through quantitative indicators compared to the values of these indicators that are reached in the industry. Based on the practical implementation, we show how we can use rating for credit risk measurement.

Suggested Citation

  • Anna Siekelová, 2017. "Using Rating for Credit Risk Measurement," Springer Proceedings in Business and Economics, in: David Procházka (ed.), New Trends in Finance and Accounting, chapter 0, pages 689-697, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-49559-0_63
    DOI: 10.1007/978-3-319-49559-0_63
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    Cited by:

    1. Podhorska Ivana & Valaskova Katarina & Stehel Vojtech & Kliestik Tomas, 2019. "Possibility of Company Goodwill Valuation: Verification in Slovak and Czech Republic," Management & Marketing, Sciendo, vol. 14(3), pages 338-356, September.
    2. Podhorska Ivana & Kovacova Maria & Valaskova Katarina, 2018. "Searching for Key Factors in Enterprise Bankrupt Prediction: A Case Study in Slovak Republic," Economics and Culture, Sciendo, vol. 15(1), pages 78-87, June.

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